AUD, the Australian Dollar is coming on strong to be a player in the currency market. It has especially barked up a storm against the sweltering Canadian Dollar thanks to some recent economic developments. The Reserve Bank of Australia (RBA) has a large role in determining the value of the AUD. It achieves this by raising and lowering interest rates to regulate lending behaviour between the major Australian banks. With a primary objective of maintaining stable inflation rates between 2-3%, the RBA’s decisions regarding interest rates significantly impact the currency’s performance.
Market developments show that iron ore the price is Australia’s most important export product. Finally, the general health of the Chinese economy is a big factor behind today’s AUD strength. Further, changes in the Trade Balance—the value of our export earnings minus the value of our import spending—affect its value. A positive net Trade Balance is usually supportive of the AUD, whereas a negative balance puts downward pressure on it.
RBA’s Role in Interest Rates
The Reserve Bank of Australia is charged with keeping monetary policy focused on achieving long term economic stability. One of its chief mechanisms for doing so is the raising and lowering of interest rates. As the central bank, the RBA controls its own benchmark interest rate, which directly affects how much banks lend to each other. This decision continues to drive up borrowing costs for consumers and businesses across Australia.
As the RBA’s Meeting Minutes from March 31 – April 1 inject additional uncertainty. This uncertainty about the timing of the next interest rate hike highlights the balancing act the central bank will have to perform as it continues operating in economic uncharted territory. The RBA therefore has an ongoing objective of balancing stimulating economic growth while maintaining inflation within an explicit target band.
Market analysts watch these interest rate announcements like hawks, because often times they are followed by sudden effects on the value of the AUD. If the market sees indications that rate hikes are a possibility, the AUD may appreciate. Conversely, any signals that suggest comfortable rates will continue to keep rates low undercut the currency.
Trade Balance and Economic Indicators
The Trade Balance is arguably the most important long-term measure for gauging the health of an economy. A positive Trade Balance indicates that a country earns more from its exports than it spends on imports, which typically strengthens its currency. On the other hand, a negative Trade Balance increases pressure on currency value to depreciate.
Australia’s economy has been helped by record demand for its key exports, especially commodities such as iron ore. China as the top trading partner The demand from China influences the Trade Balance greatly, making it hugely important. Any shifts in China’s economic growth directly impact Australian exports, thereby influencing the AUD’s strength.
Recent data suggests that Australia’s Trade Balance remains robust, contributing positively to the AUD’s upward trajectory. Export performance and import levels are highly interdependent. This is more evidence for why it’s important to keep positive lines of trade communication open, particularly with large partners like China.
Current Market Trends
Through the last few trading sessions, the Australian Dollar has continued to push its 2010 rally against all major currencies. The AUD/USD cryptocurrency pair was last seen trading around 0.6390 on Friday as the bulls appeared on daily chart bullish signals. Fears of possible economic damage from tariffs have driven down the US Dollar. This drastic decline has only exacerbated the upward trend in the market.
Technical analysis shows that the AUD/USD pair is holding above the nine-day Exponential Moving Average (EMA), with the 14-day Relative Strength Index (RSI) remaining above the neutral 50 mark. Overall, these indicators point to continued upward momentum for the Australian Dollar in the near term.
Traders are positively giddy, manifesting a distinct risk-on sentiment. This unprecedented step is testing recent gains in metals and other commodities against a backdrop of continued global economic uncertainty. In this fast-moving world market signals will need to be closely monitored as the investment community finds their way through the inevitable turbulence and new landscape.