- AUD/USD trades on a weaker note near 0.6610 in Wednesday’s early Asian session.
- The mixed Australian Judo Bank PMI and Chinese economic woes continue to undermine the Aussie.
- Rising bets on Fed rate cuts in September might cap the pair’s downside.
The AUD/USD pair trades in negative territory for the seventh consecutive day around 0.6610 on Wednesday during the early Asian session. The mixed flash Australia’s Judo Bank Purchasing Managers Index (PMI) fails to boost the Aussie. Traders await the US preliminary S&P Global PMIs for June for fresh impetus.
Data released by Judo Bank and S&P Global on Wednesday revealed that the first reading of Australia's Judo Bank Manufacturing PMI improved to 47.4 in July from 47.2 in June. Meanwhile, the Services PMI dropped to 50.8 in July from the previous reading of 51.2. The Composite PMI declined to 50.2 in July from 50.7 in June.
Sluggish Chinese economic activity has exerted some selling pressure on the Australian Dollar (AUD) over the past weeks, along with the fall in iron to the lowest since early April. Furthermore, a surprise rate cut by the People's Bank of China (PBoC) on Monday triggered concerns about the weak Chinese economy.
Nonetheless, the growing speculation that the US Federal Reserve (Fed) would start cutting the interest rate in September might weigh on the US Dollar (USD) and cap the downside for AUD/USD. Traders are now pricing in nearly a 96% odds of a Fed rate cut in September, according to the CME FedWatch Tool.
Australian Dollar FAQs
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.
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.
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.
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.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD: Bears attack 0.6600 amid risk-off mood
AUD/USD is testing bids near 0.6600 in Asian trading on Wednesday. The mixed flash Australia’s Judo Bank PMI data fail to lift the Aussie, as falling commodities prices on China's economic woes and the US earnings disappointment sap investors' confidence. US PMIs awaited.
USD/JPY declines toward 155.00 after facing rejection at 156.00
USD/JPY is falling back toward 155.00 in the Asian session on Wednesday, following a brief test of 156.00. Expectations of a BoJ rate hike combined with broad risk-aversion help the Japanese Yen regain the upper hand while the US Dollar consolidates ahead of PMI data.
Gold price consolidates above $2,400, looks to global PMIs for some impetus
Gold price struggles to capitalize on the previous day’s recovery from over a one-week trough. The USD climbs to a nearly two-week high on Wednesday and acts as a headwind for the metal. A softer risk tone and dovish Fed expectations should limit the downside ahead of global PMIs.
Ethereum ETFs flows data pour in after crossing $1 billion trading volume in first day of launch
Ethereum is down about 1% on Tuesday as spot ETH ETFs crossed the $1 billion mark in trading volume. Given its recent price movement, ETH may replicate the price of Bitcoin post-spot BTC ETF launch.
Bank of Canada: Rate cut expected; forward guidance eyed
The Bank of Canada will take centre stage at 13:45 GMT. Alongside the rate decision, the central bank will deliver the rate statement and the Monetary Policy Report, released quarterly and providing investors with a glimpse of what the central bank expects in Q3.