The AUD/USD pair saw a decline to near 0.6735 during Friday’s European session, marking a 0.10% decrease on the day. Despite Reserve Bank of Australia’s (RBA) hawkish comments, the Australian Dollar failed to gain strength due to cautious market sentiment.
The highlight of the day was the upcoming US Non-Farm Payrolls (NFP) report for August. Investors turned cautious ahead of the release, causing the AUD/USD pair to trade softer around 0.6735. The anticipation around the US employment data was evident in the markets.
While RBA Governor Michele Bullock’s optimistic remarks about the Australian economy were in contrast to the overall sentiment, investors were leaning towards expectations of the US Federal Reserve beginning to ease its monetary policy in September. Market indicators showed a nearly 59% chance of a 25 basis points rate cut by the Fed, with a 41% probability of a 50 bps cut.
The disappointing ADP Employment Change data released on Thursday added to the pressure on the USD against the AUD. Private sector employment in the US increased by 99,000 in August, falling below market expectations and causing some weakness in the greenback.
Factors affecting the Australian Dollar include RBA’s interest rate decisions, the price of Iron Ore, Chinese economic health, inflation rates, growth rate, and Trade Balance. The RBA’s influence on interest rates plays a crucial role in determining the strength of the AUD, with high rates supporting the currency and vice versa.
Being China’s largest trading partner, Australia’s economy is heavily influenced by Chinese economic health. Positive or negative shifts in China’s growth trends directly impact the demand for the AUD. Moreover, the price of Iron Ore, Australia’s top export, has a significant effect on the value of the Australian Dollar. Higher Iron Ore prices typically strengthen the AUD, along with a positive Trade Balance.
The Trade Balance, which reflects the difference between a country’s exports and imports, also contributes to the value of the Australian Dollar. A positive Trade Balance indicates higher demand for the currency due to sought-after exports, leading to a stronger AUD. Conversely, a negative Trade Balance can weaken the currency.
The AUD/USD pair’s movement reflects a combination of market sentiment, economic indicators, and central bank policies. While the RBA’s stance and US NFP report play a significant role in driving the currency pair, external factors like Chinese economic health and Iron Ore prices also have a substantial impact on the Australian Dollar’s value. Investors will continue to monitor these factors closely to gauge the future direction of the AUD/USD pair.