Created
: 2025.01.13
2025.01.13 12:41
The Australian Dollar (AUD) pauses its four-day losing streak against the US Dollar (USD) on Monday, stabilizing near its lowest level since April 2020. The AUD found some support from China's recent stimulus measures, helping the AUD/USD pair stage a modest recovery. Given the close trading relationship between Australia and China, any changes in China's economic conditions could significantly influence Australian markets.
The China Foreign Exchange Committee (CFXC) pledged to support the Chinese Yuan during a meeting in Beijing on Monday, held under the guidance of the People's Bank of China (PBOC). Separately, the PBOC and the State Administration of Foreign Exchange (SAFE), China's FX regulator, announced an increase in the macro-prudential adjustment parameter for cross-border financing from 1.5 to 1.75, effective January 13, 2025.
China's trade surplus grew in December, with the Trade Balance reaching $104.84 billion, surpassing the expected $99.8 billion and the previous balance of $97.44 billion. Exports rose by 10.7% year-over-year, exceeding the forecasted 7.3% and the previous 6.7%. Meanwhile, Imports increased by 1% year-over-year, against the expected decline of 1.5% and the prior 3.9% fall.
The AUD also received support after the release of the TD-MI Inflation Gauge, which climbed by 0.6% month-over-month in December, a significant acceleration from the 0.2% increase recorded in November, reaching its highest level since December 2023. On an annual basis, the Inflation Gauge rose by 2.6%, down from the previous 2.9% increase.
The Aussie Dollar faces downward pressure as markets now price in a 75% probability of a rate cut by the Reserve Bank of Australia (RBA) next month. Investors are expected to closely monitor Australian employment data, set to be released later this week, for additional clarity on the RBA's policy outlook.
The AUD/USD pair trades around 0.6160 on Monday, maintaining a bearish outlook as it continues to move within a descending channel on the daily chart. The 14-day Relative Strength Index (RSI) is at the 30 level, signaling an oversold condition and suggesting a potential upward correction soon.
In terms of support, the AUD/USD pair could test the lower boundary of the descending channel near the 0.5950 level.
Immediate resistance is found near the nine-day Exponential Moving Average (EMA) at 0.6196, followed by the 14-day EMA at 0.6214. A stronger resistance lies at the upper boundary of the descending channel, around 0.6230.
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the British Pound.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | 0.23% | 0.51% | -0.22% | 0.11% | 0.00% | -0.04% | 0.04% | |
EUR | -0.23% | 0.25% | -0.37% | -0.07% | -0.09% | -0.21% | -0.11% | |
GBP | -0.51% | -0.25% | -0.65% | -0.31% | -0.34% | -0.46% | -0.36% | |
JPY | 0.22% | 0.37% | 0.65% | 0.33% | 0.16% | 0.05% | 0.27% | |
CAD | -0.11% | 0.07% | 0.31% | -0.33% | -0.14% | -0.15% | 0.01% | |
AUD | -0.01% | 0.09% | 0.34% | -0.16% | 0.14% | -0.16% | -0.02% | |
NZD | 0.04% | 0.21% | 0.46% | -0.05% | 0.15% | 0.16% | 0.10% | |
CHF | -0.04% | 0.11% | 0.36% | -0.27% | -0.01% | 0.02% | -0.10% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
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.
Created
: 2025.01.13
Last updated
: 2025.01.13
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