Australian Dollar consolidates above 0.6900/multi-month low vs USD ahead of Fed's Warsh
- AUD/USD bulls seem hesitant as a combination of factors acts as a headwind.
- Fed hike bets, stable US bond yields and geopolitical risk revive USD demand.
- Receding RBA rate hike bets contribute to capping AUD ahead of Fed’s Warsh.
The AUD/USD pair struggles to capitalize on the previous day's modest bounce from sub-0.6900 levels, or the lowest since early July, oscillating in a range during the Asian session on Friday. Spot prices currently hover around the 0.6920-0.6925 region as investors now look to US Federal Reserve (Fed) Chair Kevin Warsh's speech.
Warsh's remarks at the Annual Meetings of the International Monetary Fund (IMF) and World Bank Group, in Bangkok, will be looked upon for more cues about the Fed's future policy path amid the energy-driven acceleration in US inflation. The outlook, in turn, will play a key role in influencing the US Dollar (USD) price dynamics and provide a fresh impetus to the AUD/USD pair. Heading into the key event, traders have been pricing in over a 90% chance that the US central bank will raise borrowing costs at its December policy meeting.
Furthermore, US bond yields seem to have stabilized following the previous day's steep decline, which, along with escalating tensions in the Middle East, helps revive demand for the safe-haven USD and acts as a headwind for the AUD/USD pair. In the latest developments around the Middle East crisis, the Iran-backed Houthi group carried out a deadly missile attack on the presidential palace in the Yemeni government's interim capital of Aden. This keeps the geopolitical risk premium firmly in play and backs the case for further USD appreciation.
The Australian Dollar (AUD), on the other hand, might struggle to gain any meaningful traction as traders continue to scale back expectations for further interest rate hikes by the Reserve Bank of Australia (RBA) amid signs that the domestic jobs market has cooled significantly. In fact, the Australian Bureau of Statistics (ABS) reported on Thursday that the number of employed people declined by 39.3K in September, missing estimates of a 20K increase by a big margin, while the Unemployment Rate unexpectedly edged higher to 4.7% from 4.6% in August.
The aforementioned fundamental backdrop suggests that the path of least resistance for the AUD/USD pair remains to the downside. Hence, any subsequent move up could be sold into and is more likely to remain limited. Nevertheless, spot prices seem poised to register modest weekly losses, which would mark the fourth week of a negative close in the previous five.
AUD/USD 4-hour chart
Technical Analysis
The AUD/USD pair keeps a bearish near-term bias below the 100-period Exponential Moving Average (EMA) on the 4-hour chart. The pair’s inability to reclaim this overhead dynamic barrier suggests rallies remain capped for now, with price action leaning toward a corrective phase after failing to sustain the recent push above 0.7000.
The said handle defines the first hurdle for any recovery attempt. On the downside, bears might now wait for acceptance below 0.6900 mark before positioning for any further depreciating move. Nevertheless, the broader structure favors selling into strength as long as the AUD/USD pair trades beneath the 0.6991 resistance zone.
(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.