- AUD / USD is strongly recovered at nearly 0.6400 at the expense of the US dollar.
- Washington reported its desire to negotiate a trade agreement with China.
- The RBA is expected to reduce interest rates next month.
Aud / USD pair bounces to almost 0.6390 during European negotiation hours on Thursday. The Australian pair is recovered while the two-day resumption in the US dollar (USD) collapsed despite the fears of the boiling of an intense trade war between the United States (United States) and China.
The US dollar index (DXY), which assesses the value of the greenback against six main currencies, withdrew to almost 99.20 compared to the maximum of Wednesday around 100.00.
President Donald Trump expressed his desire to conclude a trade agreement with China. “Discussions with Beijing are going well, and I think we are going to conclude an agreement,” Trump said on Tuesday. The hopes of a de -escalation in the tariff war between the two largest powers in the world have further improved, because the American secretary of the Treasury, Scott Bessent, showed the opening at the lower rates. “I do not think the two parties believe that the current rate levels are durable, so I would not be surprised if they fell in a mutual way,” said Bessent.
Meanwhile, the fears of an American inflation resurgence intensified as the Flash S&P Global Purchase (PMI) report has shown that respondents have reported the adoption of the impact of consumer prices. Such an event will limit the capacity of the Federal Reserve (Fed) to reduce interest rates.
The relaxation of tensions between Washington and China is also a favorable scenario for the Australian dollar (AUD), given the significant dependence of the Australian economy with regard to its exports to China.
At the national level, the increase in the opportunities for a drop in interest rates by the Reserve Bank of Australia (RBA) at the May policy meeting could weigh on the Australian dollar. According to Westpac analysts, the RBA will reduce its official cash rate (OCR) of 25 basic points (BP) to 3.85% in May in the middle of the growing risks for inflation and global economic growth.
Australian dollar faq
One of the most important factors for the Australian dollar (AUD) is the level of interest rate set by the Bank of Australia (RBA) reserve. Because Australia is a country rich in resources, another key engine is the price of its greatest 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 its commercial balance. The feeling of the market – that investors have more risky assets (risk) or are looking for safety havens (risk) – is also a factor, with a positive risk for AUD.
The reserve bank of Australia (RBA) influences the Australian dollar (AUD) by fixing the level of interest rate that Australian banks can lend each other. This influences the level of interest rate in the economy as a whole. The main objective of the RBA is to maintain a stable inflation rate of 2 to 3% by adjusting increased or down interest rates. Relatively high interest rates compared to other large central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative softening and tightening to influence credit conditions, with the old Aud-Negative and the second positive audience.
China is the largest trading partner in Australia, the health of the Chinese economy therefore has a major influence on the value of the Australian dollar (AUD). When the Chinese economy is doing well, it buys more raw materials, Australian goods and services, to lift demand for the AUD and to raise its value. The reverse is the case when the Chinese economy does not develop as quickly as expected. Positive or negative surprises in Chinese growth data therefore often have a direct impact on the Australian dollar and its pairs.
The iron ore is the largest export in Australia, representing $ 118 billion per year according to 2021 data, China as the main destination. The price of the iron ore can therefore be an engine of the Australian dollar. Generally, if the price of the iron ore increases, the AUD also increases, as the overall demand for the currency increases. The opposite is the case if the price of the iron ore falls. Higher prices of iron ore also tend to lead to a greater probability of a positive commercial balance for Australia, which is also positive of the AUD.
The commercial balance, which is the difference between what a country earns its exports in relation to 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, its currency will gain only from the excess demand created from foreign buyers seeking to buy its exports in relation to what it spends to buy imports. Consequently, a positive net trade balance strengthens the AUD, with the opposite effect if the trade balance is negative.
