Australian Dollar rises as softer Fed bets offsets resilient US data

AUD/USD extends rally as Fed bets cool, RBA stays hawkish

Data in the US revealed that business activity in the services sector deteriorated slightly, but remained at expansionary territory. The ISM Services PMI for June came in at 54.0, down from 54.5 but in line with estimates. Within the survey's sub-components, the Prices Index dipped from 71.3 to 67.7, while the Employment Index improved from 47.9 to 51.2.

Fed Waller remains hawkish as US jobs data dissapoints

The data paints a resilient US economy, but last week’s softer-than-expected June NFP print triggered a reaction from investors, decreasing hawkish bets. Despite this, Fed Governor Christopher Waller was hawkish, saying that policymakers are always committed to 2% inflation and that risks have flipped as the labour market stabilises while inflation is taking off.

Ahead in the week, traders are waiting for the Fed’s last meeting minutes, the first led by the new Fed Chair Kevin Warsh, eyeing clues about the path of interest rates. Alongside this, Initial Jobless Claims for the week ending July 4 are also awaited.

RBA minutes don’t disregard rate hikes

In Australia, the RBA’s last meeting minutes revealed that a pause was needed to assess the effect of the previous rate hikes. However, they acknowledged that holding rates provided the best balance to attain inflation and employment objectives. Despite this, the board remains committed to achieving price stability, including increasing rates if necessary.

Consequently, the hawkish tilt by the RBA capped some of the AUD/USD initial losses. This week, the economic calendar is light, as traders will eye the release of Westpac Consumer Confidence for July on July 13, followed by the update of Consumer Inflation Expectations for the same period.

AUD/USD Price Forecast: Technical outlook

Chart Analysis AUD/USD — AUD/USD daily chart

In the daily chart, AUD/USD trades at 0.6955. The pair retains a bearish near-term bias as spot holds below the cluster of simple moving averages (50-, 100- and 200-day SMA) grouped around 0.7091 and under several previously respected upward trend-line levels, indicating that former structural supports have turned into overhead supply. The Relative Strength Index (14) at about 43 leans weak, suggesting downside pressure persists even as the latest slide shows a modest loss of momentum rather than a sharp capitulation.

On the topside, initial resistance emerges near the broken long-term trend-line area around 0.7002, with a denser cap formed by the overlapping former trend-line supports and the SMA cluster between roughly 0.7086 and 0.7111, which would need to be reclaimed to ease the current bearish tone. With no clearly defined structural floors immediately below current prices in the provided dataset, any further decline would leave AUD/USD vulnerable to discovering fresh demand at lower levels, keeping risks tilted to the downside while it trades beneath the cited resistance band.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

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.