AUD/USD gains to near 0.6300 amid weakness in US Dollar – Crypto News – Crypto News
Connect with us
Australian Dollar faces pressure after US PMI Australian Dollar faces pressure after US PMI

others

AUD/USD gains to near 0.6300 amid weakness in US Dollar – Crypto News

Published

2 months ago

on

  • AUD/USD rises to near 0.6300 as the US Dollar slides due to uncertain US economic outlook.
  • Australia’s Westpac Consumer Confidence increases significantly to 4% in March.
  • Investors await the US inflation data, which will influence expectations for the Fed’s monetary policy outlook.

The AUD/USD pair moves higher to near the key level of 0.6300 in Tuesday’s North American session. The Aussie pair gains as the US Dollar (USD) faces significant selling pressures amid fears that the tariff agenda of United States (US) President Donald Trump will lead to economic turbulence in the near term.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, posts a fresh four-month low near 103.50.

Investors expect Trump tariffs to accelerate price pressures as their impact will be borne by US importers. Such a scenario will diminish the purchasing power of households who have been already battling to high inflationary pressures.

To get cues about the current status of US inflation, investors will focus on the Consumer Price Index (CPI) data for February, which will be published on Wednesday. The US inflation report is expected to show that the headline CPI decelerated to 2.9% from 3% in January. In the same period, the core CPI – which excludes volatile food and energy prices – is estimated to have grown at a slower pace of 3.2% compared to 3.3% seen earlier.

In the Aussie region, Westpac Consumer Confidence has increased significantly to 4% in March from 0.1% in February, the highest level in four months. Consumer Confidence has increased due to the Reserve Bank of Australia’s (RBA) interest rate cut decision on February 18. The RBA reduced its Official Cash Rate (OCR) by 25 basis points (bps) to 4.1% but guided a cautious outlook as the battle against inflation is not over yet.

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.

 

Related Topics:
Continue Reading

Trending