Forex News
- USD/CAD clings to gains near the monthly high at 1.3888 ahead of the US-Canada labor market data for December.
- The US economy is expected to have added 60K fresh workers, while the Canadian economy is seen firing 5K employees.
- The impact of the US NFP data will be significant on the Fed’s monetary policy outlook.
The USD/CAD pair demonstrates strength near its monthly high of 1.3888 during the Asian trading session on Friday. The Loonie pair trades firmly ahead of the release of the United States (US)- Canada employment data for December.
The US Nonfarm Payrolls (NFP) report is expected to show that the economy added 60K fresh workers, slightly lower than 64K in November. The Unemployment Rate is estimated to drop to 4.5% from the prior reading of 4.6%.
Investors will pay close attention to the US official employment data as Federal Reserve (Fed) officials have signaled for months that they are more concerned about weak labor market conditions than inflation remaining above the 2% target.
In 2025, the Fed delivered three interest rate cuts of 25 basis points (bps), citing job market risks.
Ahead of the US NFP data, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, wobbles near the four-week high around 98.85.
Meanwhile, the Canadian employment report is expected to show that employers fired 5K payrolls in December after a robust hiring of 53.6K workers in November. The Unemployment Rate is seen rising to 6.6% from the previous release of 6.5%. Signs of cooling job market conditions could prompt expectations of monetary easing by the Bank of Canada (BoC) in the near term.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
- US Dollar index gains as traders stay cautious ahead of the US Nonfarm Payrolls report.
- US Initial Jobless Claims rose to 208,000, below expectations but above the prior week’s revised 200,000.
- US Treasury Secretary Scott Bessent said the Fed should keep cutting rates to support stronger economic growth.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is extending its winning streak for the fourth successive session. The DXY is trading around 98.90 during the Asian hours on Friday.
The Greenback gains ground as traders remain cautious ahead of the US Nonfarm Payrolls (NFP) report, which is expected to offer further insight into labor market conditions and the Federal Reserve’s (Fed) policy outlook. December NFP is forecast to show job gains of 60,000, down from 64,000 in November.
On Thursday, the US Department of Labor (DOL) reported that Initial Jobless Claims rose modestly to 208,000 in the week ended January 3, slightly below market expectations of 210,000 but above the previous week’s revised 200,000. Continuing jobless claims increased to 1.914 million from 1.858 million, indicating a gradual rise in the number of people remaining on unemployment benefits.
The US Automatic Data Processing (ADP) reported on Wednesday that Employment Change showed an increase of 41,000 jobs in December, following a revised decline of 29,000 in November. The figure came in slightly below market expectations of 47,000.
JOLTS Job Openings came in at 7.146 million in November. This reading followed the 7.449 million openings recorded in October (revised from 7.67 million) and came in below the market expectations of 7.6 million.
US Treasury Secretary Scott Bessent said in a CNBC interview on Thursday that the Federal Reserve should continue cutting rates, arguing that lower rates are “the only ingredient missing” for even stronger economic growth and that the Fed should not delay.
According to the CME Group's FedWatch tool, Fed funds futures continue to price in about an 86.2% probability that the US central bank will keep rates unchanged at its January 27–28 meeting.
Economic Indicator
Nonfarm Payrolls
The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.
Read more.Next release: Fri Jan 09, 2026 13:30
Frequency: Monthly
Consensus: 60K
Previous: 64K
Source: US Bureau of Labor Statistics
America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.
- Australian Dollar weakens as China’s December CPI rose 0.8% YoY, below the 0.9% forecast.
- Australia’s mixed November inflation keeps RBA policy uncertain, with attention shifting to the quarterly CPI later this month.
- The US Dollar strengthens on weekly labor data as traders remain cautious ahead of the US NFP report.
The Australian Dollar (AUD) declines against the US Dollar (USD) on Friday, remaining subdued for the third successive session. The AUD/USD pair remains subdued following the release of key economic data from China, a key trading partner of Australia.
China’s Consumer Price Index (CPI) rose 0.8% year-over-year (YoY) in December, up from 0.7% in November but below the 0.9% forecast. On a monthly basis, CPI increased 0.2%, reversing November’s -0.1% reading. Meanwhile, China’s Producer Price Index (PPI) fell 1.9% YoY in December, improving from a 2.2% decline previously and slightly beating expectations of a -2.0% print.
The Australian Bureau of Statistics (ABS) reported on Thursday that Australia’s Trade Surplus narrowed to 2,936M MoM in November, versus 4,353M (revised from 4,385M) in the previous reading. Exports fell by 2.9% MoM in November from a rise of 2.8% (revised from 3.4%) seen a month earlier. Meanwhile, Imports grew by 0.2% MoM in November, compared to a rise of 2.4% (revised from 2.0%) seen in October.
Australia’s mixed November Consumer Price Index (CPI) left the Reserve Bank of Australia’s (RBA) policy outlook uncertain. Focus now shifts to the quarterly CPI report due later this month for clearer guidance on the RBA’s next policy move. However, RBA Deputy Governor Andrew Hauser said on Thursday that the November inflation data was largely as expected. Hauser added that interest rate cuts are unlikely anytime soon.
US Dollar gains amid solid labor market data
- The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is gaining ground and trading around 98.90 at the time of writing. The Greenback strengthens following the release of US weekly labor market data.
- Traders remain cautious ahead of the US Nonfarm Payrolls (NFP) report, which is expected to offer further insight into labor market conditions and the Federal Reserve’s (Fed) policy outlook. December NFP is forecast to show job gains of 60,000, down from 64,000 in November.
- The US Department of Labor (DOL) reported on Thursday that Initial Jobless Claims rose modestly to 208,000 in the week ended January 3, slightly below market expectations of 210,000 but above the previous week’s revised 200,000. Continuing jobless claims increased to 1.914 million from 1.858 million, indicating a gradual rise in the number of people remaining on unemployment benefits.
- The Institute for Supply Management (ISM) reported on Wednesday that the US Services PMI rose to 54.4 in December from 52.6 in November. This figure came in stronger than the expectations of 52.3.
- The US Automatic Data Processing (ADP) Employment Change showed an increase of 41,000 jobs in December, following a revised decline of 29,000 in November. The figure came in slightly below market expectations of 47,000.
- JOLTS Job Openings came in at 7.146 million in November. This reading followed the 7.449 million openings recorded in October (revised from 7.67 million) and came in below the market expectations of 7.6 million.
- According to the CME Group's FedWatch tool, Fed funds futures continue to price in about an 86.2% probability that the US central bank will keep rates unchanged at its January 27–28 meeting.
- The Australian Bureau of Statistics (ABS) reported on Wednesday that Australia’s Consumer Price Index rose 3.4% year-over-year (YoY) in November, easing from 3.8% in October. The reading missed market expectations of 3.7% but remained above the RBA’s 2–3% target. It marked the lowest inflation since August, with housing costs increasing at the slowest pace in three months.
- Australia’s CPI was unchanged at 0% month-on-month (MoM) in November, matching October’s reading. Meanwhile, the RBA’s Trimmed Mean CPI rose 0.3% MoM and 3.2% YoY. Separately, seasonally adjusted Building Permits surged 15.2% MoM to a near four-year high of 18,406 units in November 2025, rebounding from a downwardly revised 6.1% fall previously. Annual approvals jumped 20.2%, reversing a revised 1.1% decline in October.
- The Australian Financial Review (AFR) suggested that the RBA may not be done tightening this cycle. The poll indicates that inflation is expected to remain stubbornly elevated over the coming year, fueling expectations of at least two additional rate hikes.
Australian Dollar tests lower channel boundary after breaking below 0.6700
AUD/USD is trading around 0.6690 on Friday. Technical analysis of the daily chart indicates that the pair is testing the lower boundary of the ascending channel pattern, suggesting a potential for a weakening of a bullish bias. The 14-day Relative Strength Index (RSI) at 56.8 stays above the midline but has eased from recent peaks, indicating slower bullish impetus.
The immediate resistance lies at the nine-day Exponential Moving Average (EMA) of 0.6700. A break above the short-term average would reinforce the bullish momentum, and the AUD/USD pair may rebound toward the target 0.6766, the highest level since October 2024, followed by the upper boundary of the ascending channel near 0.6850.
On the downside, the break below the lower ascending channel boundary would lead the AUD/USD pair to test the 50-day EMA at 0.6628. Further losses would open the downside toward 0.6414, the lowest since June 2025.
Australian Dollar Price Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.04% | 0.09% | 0.17% | 0.10% | 0.04% | 0.13% | 0.06% | |
| EUR | -0.04% | 0.04% | 0.13% | 0.05% | 0.00% | 0.10% | 0.02% | |
| GBP | -0.09% | -0.04% | 0.08% | 0.01% | -0.04% | 0.05% | -0.03% | |
| JPY | -0.17% | -0.13% | -0.08% | -0.07% | -0.13% | -0.05% | -0.12% | |
| CAD | -0.10% | -0.05% | -0.01% | 0.07% | -0.06% | 0.03% | -0.04% | |
| AUD | -0.04% | -0.00% | 0.04% | 0.13% | 0.06% | 0.09% | 0.01% | |
| NZD | -0.13% | -0.10% | -0.05% | 0.05% | -0.03% | -0.09% | -0.08% | |
| CHF | -0.06% | -0.02% | 0.03% | 0.12% | 0.04% | -0.01% | 0.08% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest 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 sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence 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 influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus 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, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
(The technical analysis of this story was written with the help of an AI tool)
- Silver price gains on safe-haven demand amid traders’ caution ahead of key US jobs data.
- The dollar-denominated Silver may face pressure as the USD strengthens after the US weekly labor market data.
- The grey metal remains set for a weekly gain above 6%, supported by escalating geopolitical tensions.
Silver price (XAG/USD) edges higher after two days of losses, trading around $77.20 per troy ounce during the Asian hours on Friday. The prices of the precious metals, including Silver hold ground as traders adopt caution ahead of key US jobs data amid elevated geopolitical tensions.
Traders await the US Nonfarm Payrolls (NFP) report, which is expected to offer further insight into labor market conditions and the Federal Reserve’s (Fed) policy outlook. December NFP is forecast to show job gains of 60,000, down from 64,000 in November.
The dollar-denominated Silver could face further challenges as the US Dollar (USD) strengthens following the release of US weekly labor market data. The US Department of Labor (DOL) reported on Thursday that Initial Jobless Claims rose modestly to 208,000 in the week ended January 3, slightly below market expectations of 210,000 but above the previous week’s revised 200,000.
Meanwhile, the grey metal remains on track for a weekly gain of over 6%, underpinned by rising geopolitical tensions that have boosted safe-haven demand. President Trump warned of a forceful response to any Iranian violence against protesters, following recent US actions in Venezuela and threats to use military force to seize control of Greenland.
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
- NZD/USD attracts sellers for the fourth consecutive day as geopolitical tensions underpin the USD.
- China’s inflation figures fail to impress bulls or influence antipodean currencies, including the Kiwi.
- The divergent Fed-RBNZ policy outlooks could support spot prices ahead of the key US NFP report.
The NZD/USD pair remains under some selling pressure for the fourth straight day and trades just below mid-0.5700s during the Asian session on Friday. Spot prices remain depressed and move little following the release of the latest inflation figures from China, as traders keenly await the highly anticipated US Nonfarm Payrolls (NFP) report, due later today.
China's National Bureau of Statistics (NBS) reported that the headline Consumer Price Index (CPI) rose at an annual rate of 0.8% in December, up from a 0.7% increase in the previous month. The reading, however, was lower than consensus estimates for a 0.9% growth. Meanwhile, the Producer Price Index (PPI) fell 1.9% year-on-year, compared with a 2.2% fall in November, and pointed to moderating deflationary pressures. The data, however, fails to provide any meaningful impetus to antipodean currencies, including the Kiwi.
Rising geopolitical tensions assist the safe-haven US Dollar (USD) in preserving its weekly gains to a one-month high, touched on Thursday, and continues to act as a headwind for the risk-sensitive New Zealand Dollar (NZD). However, dovish US Federal Reserve (Fed) expectations might keep a lid on any further USD appreciation. Furthermore, the Reserve Bank of New Zealand's (RBNZ) hawkish outlook on the future policy path offers support to the NZD and might contribute to limiting the downside for the NZD/USD pair.
In fact, RBNZ Governor Ann Breman had said that the policy rate is likely to remain at its current level for an extended period if economic conditions unfold as expected. This, in turn, warrants some caution for bearish traders heading into the key US data risk. Hence, it will be prudent to wait for some follow-through selling below the weekly low, around the 0.5725-0.5720 region, before positioning for any further depreciating move for the NZD/USD pair, which seems poised to register losses for the second consecutive week.
Economic Indicator
Consumer Price Index (YoY)
The Consumer Price Index (CPI), released by the National Bureau of Statistics of China on a monthly basis, measures changes in the price level of consumer goods and services purchased by residents. The CPI is a key indicator to measure inflation and changes in purchasing trends. The YoY reading compares prices in the reference month to the same month a year earlier. Generally, a high reading is seen as bullish for the Renminbi (CNY), while a low reading is seen as bearish.
Read more.Last release: Fri Jan 09, 2026 01:30
Frequency: Monthly
Actual: 0.8%
Consensus: 0.9%
Previous: 0.7%
Source: National Bureau of Statistics of China
- WTI attracts fresh sellers as Trump’s Venezuela oil plan fuels oversupply worries.
- The recent USD rally to a nearly one-month peak contributes to capping Oil prices.
- Traders now look to the key US NFP report for Fed rate cut cuts and some impetus.
West Texas Intermediate (WTI) US Crude Oil prices attract fresh sellers during the Asian session on Friday and erode a part of the previous day's strong move up from the vicinity of the lowest level since December 19, touched earlier this week. The commodity currently trades just below the $58.00 mark, down over 0.80% for the day, and remains capped below the 50-day Simple Moving Average (SMA) pivotal resistance.
The commodity did get a strong boost on Wednesday after the US government data showed that oil inventories shrunk more than expected, by 3.8 million barrels in the week to January 2. This marked the largest decrease since late October, which, along with rising geopolitical risks and supply disruption worries, prompted aggressive short-covering around Crude Oil prices. The move up, however, lacks follow-through amid expectations that the US control of Venezuela’s oil was likely to increase global supplies.
In fact, a WSJ report said that US President Donald Trump is planning an initiative to control the Venezuelan oil industry for several years to come in a bid to achieve the $50 a barrel price target. The report further added that the Trump administration is also considering controlling Venezuela’s state-run oil company, Petróleos de Venezuela SA, or PdVSA. Furthermore, Trump had said earlier this week that Venezuela will be turning over 30 million to 50 million barrels of high-quality, sanctioned oil to the US.
Apart from this, worries about weakening fuel demand and the recent US Dollar (USD) rise to a nearly one-month peak, touched on Thursday, fail to assist the black liquid to build on Wednesday's gains. Traders now look forward to the release of the US Nonfarm Payrolls (NFP) report for more cues about the Federal Reserve's (Fed) future rate-cut path. The outlook will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to USD-denominated commodities, including Crude Oil prices.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
China’s Consumer Price Index (CPI) rose at an annual rate of 0.8% in December after reporting a 0.7% increase in November, the country’s National Bureau of Statistics (NBS) reported on Friday. The market forecast was for a 0.9% growth in the reported period.
Chinese CPI inflation came in at 0.2% month-over-month (MoM) in December versus the previous reading of -0.1%.
China’s Producer Price Index (PPI) declined by 1.9% over the year in December, following a 2.2% fall in November. The data came in better than the market expectation of -2.0%.
Market reaction to China’s inflation data
At the press time, the AUD/USD pair is holding lower ground near 0.6690 following the mixed Chinese inflation data, down 0.06% on the day.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest 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 sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence 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 influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus 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, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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