- Aud/USD edges higher to about 0.6325 in Monday’s early Asian session.
- China has launched special initiatives to increase consumption and raise incomes.
- Michigan Consumer Sentiment Index fell to the lowest since 2022.
Aud/USD paret collects strength to almost 0.6325 during the early Asian session Monday. The couple on the couple are strengthened by the weaker US dollar (USD) and special plans from the Chinese government to increase consumption and raise incomes. Dealers support Chinese financial data later on Monday, including retail sales and industrial production. US February -detail also released the same day.
On Sunday, China announced to increase consumption by raising people’s income as an important driving force for economic growth. The measures will include stabilization of the stock and real estate markets and offer incentives to increase the country’s birth rate as the government is trying to relieve the deflation pressure affecting the economy.
In addition, the government will include increased employment and raise minimum wages as well as strictly enforce the paid annual leave system. Any positive development around the Chinese stimulus plan can increase the Australian dollar (AUD) (AUD) as China is an important trading partner to Australia.
On the USD’s front, the University of Michigan (UOM) published its preliminary consumer sentiment index reading for March, showing that the figure dropped to 57.9, the lowest since November 2022, from 64.7 in the previous reading. This reading came under the consensus estimate of 63.1. Meanwhile, Uom-Fem-Fem-Fem-Fem-year-old consumer inflation expectation ran to 3.9% in March compared to 3.5% in February.
Markets expect broadly that the Federal Reserve (Fed) will hold on to wait as it ends its two-day meeting on Wednesday. The financial markets are priced in almost 75% chance of a quarter-point reduction at Fed’s political rate by June, according to the CME FedWatch tool.
Australian questions
One of the most significant factors for the Australian dollar (AUD) is the level of interest rates set by Reserve Bank of Australia (RBA). Because Australia is a resourceful country, another important drives the price of its largest 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 mood-in-investors take on more risky assets (risk-on) or seek safely ports (risk-off)-are also a factor of risk-on positive for AUD.
Reserve Bank of Australia (RBA) affects the Australian dollar (AUD) by setting the level of interest rates that Australian banks can borrow to each other. This affects the level of interest rates in the economy as a whole. RBA’s main target is to maintain a stable inflation of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support AUD and the opposite of relatively low. RBA can also use quantitative easing and tightening to influence the 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 impact on the value of the Australian dollar (AUD). When the Chinese economy is doing well, it buys more raw materials, goods and services from Australia, raises the demand for AUD and pushes up its value. The opposite is the case when the Chinese economy does not grow as fast as expected. Positive or negative surprises in Chinese growth data therefore often have a direct impact on the Australian dollar and its couple.
Iron Ore is Australia’s largest export and accounts for $ 118 billion a year according to data from 2021 with China as its primary destination. The price of iron ore can therefore be a driving force for the Australian dollar. Generally, if the price of iron ore rises, AUD is also going up as the overall demand for the currency rises. The opposite is the case if the price of iron ore falls. Prices on higher iron ore also tend to result in a greater likelihood of a positive trade balance for Australia, which is also positive for AUD.
The trade balance, which is the difference between what a country earns from its export versus what it pays for its imports is another factor that can affect the value of the Australian dollar. If Australia produces much sought -after export, its currency will win in value exclusively from excess demand created from foreign buyers trying to buy their exports versus what it uses to buy imports. Therefore, a positive Net Distance Balance Aud strengthens with the opposite effect if the trade balance is negative.