Australian Dollar weakens on muted Australian data, China CPI miss

• AUD slides on Thursday, continuing its losing streak below 0.6200.
• Slower Aussie Retail Sales fuel RBA rate cut bets.
• China’s soft CPI dampens the Australian Dollar’s prospects.

AUD/USD slumps to near 0.6170 as the US Dollar performs strongly on a stubborn US inflation outlook on Thursday. The Aussie was a weak performer due to muted local data and soft Chinese inflation data. Investors now look ahead to US Nonfarm Payrolls (NFP) for hints on future rate actions from the Federal Reserve (Fed).

Daily digest market movers: Aussie weak as markets await Fed directions

• Investors expect US President-elect Donald Trump’s pro-growth and inflationary policies to keep the Federal Reserve leaning hawkish.
• December’s Federal Open Market Committee Meeting Minutes reveal Fed officials worried about a slowdown in disinflation, citing potential trade and immigration policy shifts.
• Market participants await Friday’s US NFP release for new clues on the central bank’s next monetary policy steps.
• On the data front, Australian Retail Sales grew 0.8% in November, undershooting the 1% forecast but above the previous 0.5%, upping RBA dovish bets.
• Traders have fully priced in a 25-basis-point RBA rate cut for the April meeting, pressuring the Aussie.
• China’s annual CPI for December edged up 0.1%, below the prior 0.2%, adding to concerns over the AUD’s proxy role in Chinese growth.

AUD/USD technical outlook: Bears reclaim control as key SMA caps recovery

The AUD/USD declined by 0.34% on Thursday, extending its losing streak for the third consecutive day. The Relative Strength Index (RSI) stands at 35, moving deeper into negative territory, while the Moving Average Convergence Divergence (MACD) histogram shows decreasing green bars.

Bears have invalidated the latest bullish recovery attempt, and unless the pair clears its 20-day Simple Moving Average (SMA), the outlook will likely remain tilted to the downside.

Supports: 0.6150, 0.6130, 0.6100.

Resistances: 0.6200, 0.6215, 0.6250.

Australian Dollar FAQs

What key factors drive the Australian Dollar?

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

How does the health of the Chinese Economy impact the Australian Dollar?

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

How does the price of Iron Ore impact the Australian Dollar?

Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

How does the Trade Balance impact the Australian Dollar?

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.

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