The Australian Dollar (AUD) has traded pretty stable near that 0.6500 psychological support against the US Dollar (USD). This stability is in part due to recent statements by US President Donald Trump, which further calmed trade tension between the US and China. As Australia’s largest trading partner, the health of China’s economy significantly impacts the value of the AUD. Recent statements from Trump regarding tariffs and upcoming diplomatic meetings suggest a potential thaw in relations, which could further influence market dynamics.
On Thursday, the AUD/USD fell to an intraday low of 0.6443 before rebounding sharply to trade above 0.6500 again. On the one hand, the continued strength of the Chinese economy is what fuels this resilience. Its expansion metrics are a key factor in Australia’s most export-centric economy. As China increases its imports of raw materials, manufactured goods, and professional services from Australia, the AUD tends to appreciate. This trend underscores the powerful tightrope walked between these two economies.
The link between China’s economic performance, and the value of the AUD, can’t be understated. Equally, a few crucial factors closer to home in Australia have been instrumental. On the domestic front, this includes Australia’s own growth rate, trade balance and inflation rates. THE INFLUENCE OF IRON ORE The price of the ore, still Australia’s top export, is the most important key to the currency’s value.
Impact of China on the Australian Dollar
The impact of Australian Dollar Ȧ$ is being greatly impacted by the state of China’s economy. Given that China is currently Australia’s largest trading partner, any dips or surprise growth in this data instantly have longer-term ramifications on demand of Australian export production. In those years when China’s economy posts robust growth, that naturally pushes up demand for Australian bulk commodities. This initial wave of buying puts upward pressure on the Australian dollar (AUD).
Positive recent data out of China pointing to an economic recovery has helped the Australian currency as well. Increasing demand for iron ore—a vital ingredient for manufacturing steel which is instrumental to China’s economic plan—has added to the pressure. Growing demand raises the price of iron ore. In addition to increasing the price, this appreciation causes the AUD to appreciate, as traders are anticipating higher Australian export revenues.
On top of that, the U.S. president’s latest thundering against trade has boosted the Australian dollar even further. The mood in the markets has changed considerably since then, when Trump called his original tariff blueprint “not sustainable.” This acknowledgment offers optimism that a resolution between the US and China may be forthcoming, which would further enhance Australia’s economic outlook.
The Role of US-China Relations
Needless to say, US-China relations will have a big impact on global economic and trade environments. Trump has called for a summit with Chinese President Xi Jinping at this fall’s APEC Summit. If it comes to pass, this would be one of the biggest breakthroughs in trade liberalization negotiations. If these negotiations prove fruitful then this will only strengthen the AUD even more as faith in the Chinese economy returns.
The US Dollar Index (DXY) is on the defensive here though it is recovering a little from two-week lows just above 98, at 98.45. This cyclical recovery has important implications for the AUD/USD exchange rate. As a rule, a stronger DXY will drag the AUD down with it. On balance, recent factors have supported the Australian currency to resist these outward pressures.
AUD/USD technical analysis, immediate support seen around the current weekly low of 0.6440. Analysts say a deep break under this threshold would be unprecedented. If so, it could expose further multi-month horizontal support at 0.6400. Traders are on edge as they watch the release of any new domestic economic data and closely follow developments abroad.
Domestic Factors Influencing the Australian Dollar
Apart from external forces, a number of domestic factors have an enormous bearing on the value of the AUD. Australia’s economic growth rate continues to be a bedrock factor in establishing currency strength. An economy that is robust attracts buoyant foreign investment and creates reliability in the current dollar.
Furthermore, Australia’s trade balance is a linchpin to currency valuation. A surplus means that we’re exporting more than we’re importing, which would add to the AUD’s strength. A deficit can lead to a depreciation in the currency. This is bad because it means there’s a higher demand for goods and services produced abroad.
Inflation rates internally in Australia are hugely influential on consumer buying power and general economic wellbeing. Controlled, moderate inflation contributes to a stable currency outlook. However, excessive inflation can reduce the value and the confidence of the AUD.