Australian Dollar finds a floor after upbeat Australian trade and China Caixen data

Australian Dollar falls to a temporary support level against the US Dollar on Thursday.
The Aussie is relieved by upbeat Australian trade balance data and Chinese services sector PMIs.
The general market mood remains depressed, however, broadly favoring the USD over the AUD.

The Australian Dollar (AUD) finds temporary support against the US Dollar (USD) on Thursday, after its recent relentless battering. Figures showing Australia achieved a higher-than-expected trade surplus of $11,321 million in June helped steady the ship, as did favorable Caixin Chinese Services PMIs which registered an unexpected 54.1 in July.

Australia’s largest export Iron Ore, however, further declines, weighing on the Australian Dollar, with Chinese Iron Ore (62%) Futures reaching a new low for July in the $107s.

AUD/USD trades in the 0.65s during the US session.

Australian Dollar news and market movers

The Australian Dollar loses ground initially on Thursday but finds a floor after the release of the Australian Trade Balance in June, which beats expectations of 11,000M with an $11,321M print. This is also higher than the $10,497M in May.
China Caixen Services PMI in July also beats expectations of 52.5 by coming out at 54.1 from 53.9 in the previous month of June. As Australia’s largest trading partner this is good news for the Aussie.
The US Dollar continues to rally despite US debt being downgraded to AA+ from AAA by credit rating agency Fitch on Monday. The rise in the Dollar despite the downgrade is paradoxically due to the overall negative market mood which tends to benefit safe-havens like the US Dollar, argues FXStreet Lead Analyst Eren Sengezer.
The US Dollar was also supported on Wednesday by data from US private sector payroll processor ADP which registered the addition of 324K new workers in July when only a 189K increase had been forecast by economists, although the figure was still below the 497K in June.
US Initial Jobless Claims come out at 227K exactly in line with expectations according to the US Department of Labor on Thursday, further slowing the USD’s rise and the Aussie’s rout.
The Australian Dollar was already on a weak footing after the RBA left the policy rate unchanged at 4.1% on Tuesday morning, against the market expectation for a 25 basis points hike. In the policy statement, the RBA explained that the decision to hold rates unchanged would provide them more time to assess the impact of policy tightening to date and the economic outlook.
That said, they did not completely rule out the possibility of more rate hikes in the future, “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon the data and the evolving assessment of risks,” the RBA noted.
The next key release for the pair is weekly Initial Jobless Claims in the US, later in the day, the US ISM services PMI survey for July, and Unit Labor Costs data for the second quarter.

Australian Dollar technical analysis

Despite AUD/USD’s short-term bearish inclination, looked at on a longer-term weekly chart it is broadly in a sideways trend. The February high at 0.7158 is a key ceiling level, which if vaulted, will alter the outlook to one that is more bullish longer term.

Likewise, the downside, the 0.6458 low established in June is a key level for bears, which if breached decisively, would give the chart a more bearish overtone. Price is currently moving down nearer to this key low.

Australian Dollar vs US Dollar: Weekly Chart

Price has now broken cleanly through the confluence of moving averages (MA) close to 0.6700, made up of most of the major SMAs – the 50-week, 50-day and 100-day. The breaching of this key support and resistance level is a bearish sign.

Australian Dollar vs US Dollar: Daily Chart

It is possible price may have completed a Measured Move pattern or three wave ABC correction (see daily chart), in July. If so, there is a chance it may be about to start a short-term upcycle. Given how bearish price action is at the moment, however, the chances of this scenario unfolding are diminishing by the hour.

AUD/USD has now also broken below the 0.6600 June lows on an intraday basis, and a continuation down to the key May lows at 0.6460, is quite possible. A decisive break below them would open the way for a move down to 0.6170 and the 2022 lows.

Because the pair is in a sideways trend overall it is unpredicatable and the probabilities do not favor either bears or bulls overall – nor is the Relative Strength Index (RSI) providing much insight on either timeframe.

In technical terms, a ‘decisive break’ consists of a long daily candlestick, which pierces cleanly above or below the critical level in question and then closes near to the high or low of the day. It can also mean three up or down days in a row that break cleanly above or below the level, with the final day closing near its high or low and a decent distance away from the level.

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.

منبع: https://www.fxstreet.com/news/australian-dollar-falls-to-new-lows-after-upbeat-us-labor-data-202308021252