Australian Dollar holds near 0.6200 after PCE data from the US
- Aussie edges up 0.33%, consolidating around 0.6200.
- Markets digest US PCE data for policy cues.
- Fed is seen holding rates steady in early 2025.
The Australian Dollar consolidates around 0.6200 on Friday as traders digest November’s US Personal Consumption Expenditures (PCE) inflation data. With the Federal Reserve (Fed) expected to keep interest rates steady at the first 2025 policy meeting, investors also await next week’s Reserve Bank of Australia (RBA) minutes for insight into potential rate moves.
Soft US PCE figures are tempering the Greenback’s strength, offering modest support to the Aussie’s nascent rebound.
Daily digest market movers: Aussie sees mild rebound as markets digest soft PCE data
- The US Dollar Index eased after hitting a two-year high at 108.50, as PCE data undercut inflation expectations.
- The US November PCE monthly headline reading came in at 0.1%, down from 0.2%.
- The yearly measure rose at 2.4% YoY, slightly below the 2.5% forecast.
- Core PCE slipped to 0.1% monthly from 0.3%, with the annual figure steady at 2.8% and under the 2.9% estimate.
- RBA minutes due Tuesday may shed light on future policy moves after Governor Michele Bullock expressed confidence in easing wage and demand pressures.
- China’s sluggish growth outlook and potential US tariffs still cap Aussie upside, though today’s softer US data offers a brief reprieve.
AUD/USD technical outlook: Aussie finds footing as oversold signals fade
The AUD/USD is extending its gains for a second consecutive day. The Relative Strength Index (RSI) stands near 33, rebounding from oversold territory, while the Moving Average Convergence Divergence (MACD) histogram prints flat red bars.
Although momentum remains fragile, the pair’s modest recovery and improving technical signals suggest it may stabilize further if incoming data continues to temper the US Dollar’s strength.
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.