Australian Dollar drifts higher above 0.7200 despite as strong US NFP
- AUD/USD edges higher to near 0.7205 in Monday’s early Asian session.
- China’s Finance Ministry will inject billions into state insurers and banks.
- US NFP blows past expectations in August.
The AUD/USD pair gathers strength to around 0.7205 during the early Asian session on Monday. The Australian Dollar (AUD) edges higher against the US Dollar (USD) as China seeks to shore up capital across its financial system. US markets will be closed on Monday for Labor Day.
China's Finance Ministry will lead a combined $54 billion capital injection into state-owned insurers and banks as Beijing moves to shore up balance sheets and sustain growth in a slowing economy, per Bloomberg.
The source said at least eight financial institutions are seeking $53.6 billion in fresh capital, with the government providing more than 80% of the funding. This development provides some support to the China-proxy Aussie, as China is a major trading partner of Australia.
On the other hand, the upbeat US employment report might help limit the Greenback’s losses. Data released by the US Bureau of Labor Statistics (BLS) on Friday showed that Nonfarm Payrolls (NFP) increased by 162,000 in August after an upwardly revised rise of 21,000 in July. This figure came in above the market consensus of 56,000 and registered the largest gain in five months.
Meanwhile, the Unemployment Rate in the US held steady at 4.1%, suggesting an improvement in the labor market after recent struggles, keeping an interest rate increase from the Federal Reserve (Fed) this month on the table.
Financial markets are now pricing in nearly a 58.3% chance of a 25 basis points (bps) rate hike at the Fed's September meeting, up from about 50.2% before the data, according to the CME FedWatch tool.
RBA data test looms as Aussie holds near recent highs
Societe Generale frames the near-term focus squarely on upcoming domestic data, asking whether it will be sufficient to shift the policy timeline at Martin Place. With AUD/USD holding firm after recent dip-buying and market expectations coalescing around a modest tightening later this month, the bank pointedly raises the question: “Will the data convince the RBA to bring forward the next rate increase?”
Technical Analysis: AUD/USD keeps a bullish vibe in the near term
In the daily chart, AUD/USD maintains a bullish near-term bias as spot holds above the Bollinger middle band and the 100-day simple moving average (SMA), keeping the broader uptrend supported. Price is approaching the upper Bollinger band, while the Relative Strength Index (RSI) at 66.99 is edging into bullish territory but still shy of classical overbought readings, suggesting upside momentum is firm yet not extreme.
On the topside, immediate resistance is located at the upper Bollinger band at 0.7235, where a daily close above would open the way for a continuation of the advance. On the downside, initial support emerges at the Bollinger middle band at 0.7140, followed by the 100-day SMA at 0.7080 and the lower Bollinger band near 0.7045, levels that together define a layered demand zone underpinning the bullish structure as long as they remain intact.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.