Australia's economy received a boost in market confidence as the Australian dollar rallies on the back of stronger-than-expected retail sales data for August. This, combined with the Reserve Bank of Australia’s (RBA) decision to maintain interest rates at 4.35%, has kept the AUD solid against the US dollar.
Key Takeaways:
The Australian dollar rallies due to stronger-than-expected retail sales data in August, rising by 0.7%.
The Reserve Bank of Australia (RBA) maintains its restrictive monetary policy, supporting the Australian dollar’s strength.
China’s stimulus measures boost commodity demand, positively impacting the Australian dollar’s outlook.
Australian Dollar Rallies as Retail Sales Exceed Forecasts, RBA Holds Rates Steady
In its recent monetary policy update, the RBA held interest rates steady at 4.35%, a move that
aligns with its continued focus on curbing inflationary pressures. The central bank remains committed to maintaining a restrictive monetary stance to ensure that inflation is kept under control, signaling no immediate plans to cut rates. The hawkish tone from the RBA supports the strengthening of the Australian dollar, as investors feel assured that the country’s economic policy will remain robust in the near future.
Global Economic Impact and US Dollar Influence
While the Australian dollar rallies, the performance of the US dollar also plays a pivotal role. Hawkish remarks from Federal Reserve Chair Jerome Powell earlier in the week had temporarily strengthened the greenback. Powell signaled that the Fed is not in a rush to cut interest rates, despite market expectations for more aggressive rate reductions. However, with the US economy showing signs of easing inflationary pressures, traders are keeping a close eye on upcoming economic data, including the Institute for Supply Management (ISM) Manufacturing PMI.
This tug-of-war between the US and Australian monetary policies has seen the AUD/USD pair navigate volatility in global markets. The Australian dollar, strengthened by retail sales growth and the RBA’s firm stance, now stands resilient against the US dollar, which continues to face pressure from a looming economic slowdown.
China’s Stimulus Measures and Commodity Prices
The Australian dollar’s performance is also heavily influenced by China's economic activity, as China remains Australia's largest trading partner. Recently, China announced a significant stimulus package, which aims to boost domestic demand and support its flagging economy.
As a commodity-linked currency, the Australian dollar rallies on positive news regarding China, particularly when it results in higher demand for raw materials such as iron ore and coal. This improved demand outlook in China, coupled with better domestic retail data, creates a favorable environment for the AUD to maintain its strength.
Technical Outlook: Australian Dollar Holds Strong
From a technical standpoint, the AUD/USD pair remains within an ascending channel. Currently trading near 0.6930, the pair shows strong support near the lower boundary of this channel, around 0.6900. The bullish bias is reinforced by a 14-day Relative Strength Index (RSI) just below the 70 level, suggesting that positive momentum remains intact. If the AUD breaks through resistance near 0.7020, we could see further upside potential. On the downside, immediate support rests around the 0.6890 level, with further support near 0.6866, where the nine-day Exponential Moving Average (EMA) resides.
Conclusion: Australian Dollar's Strength Likely to Continue
The combination of stronger-than-expected retail sales and the RBA's hawkish stance has allowed the Australian dollar to rally against its major peers. While the global economic landscape remains uncertain, particularly with the Federal Reserve’s gradual approach to interest rate cuts, the outlook for the AUD appears positive, especially as China continues to implement economic stimulus measures that support Australian exports. Moving forward, traders should watch for any shifts in the RBA’s policy or unexpected changes in global economic conditions that could affect the Australian dollar’s momentum.
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