Forex News
- EUR/USD weakens to near 1.1325 in Thursday’s early Asian session.
- US PCE inflation rose less than expected in August, reducing expectations for a Fed rate hike this month.
- ECB’s Lagarde stressed the central bank should adopt a “measured response” given no evidence of second-round effects.
The EUR/USD pair drifts lower to around 1.1325 during the early Asian trading hours on Thursday. The US Dollar (USD) strengthens against the Euro (EUR) amid an extended rise in US Treasury yields. The US weekly Initial Jobless Claims report and the Fedspeak will be the highlights later in the day.
The US Personal Consumption Expenditures (PCE) Price Index increased 0.3% MoM in August, putting the 12-month gain at 3.4%, the Commerce Department's Bureau of Economic Analysis showed on Wednesday. These figures came in softer than the expectation. Excluding food and energy, PCE posted a 0.2% rise that put the annual core level at 3.0%. The respective forecasts were for 0.3% and 3.3%.
According to the CME FedWatch tool, traders are pricing in a 38.2% chance of a quarter-point rate hike this month, down from 51% a day ago. Traders are still expecting another hike in December despite the softer inflation data Wednesday.
The scaling back of bets for a Fed rate increase in the October policy meeting prompted a slight retreat in shorter-dated US Treasury yields, but 10- and 30-year bond yields still reached new highs overnight.
Across the pond, European Central Bank (ECB) Christine Lagarde said on Tuesday that rising bond yields will curb economic expansion and limit the transfer of elevated energy costs to inflation. She added that the central bank should adopt a “measured response as appropriate to keep inflation in check” with second-round effects so far absent.
TD Securities sees mildly restrictive ECB path supporting bullish EURUSD view
According to TD Securities, “resilient growth and persistent inflation pressures” are likely to keep the ECB focused on “returning rates to mildly restrictive territory,” with the bank expecting the Governing Council to “deliver a final 25bp hike in December, taking the deposit rate to 2.75%.” In their view, “underlying economic data and inflation indicators remain broadly consistent with a measured tightening cycle aimed at moving policy into mildly restrictive territory.”
On the market side, TD highlights that “OIS markets are currently pricing around 31bp of ECB tightening by end-2026 and close to 100bp cumulatively by end-2027, taking the terminal rate to nearly 3.5%, well above the 2.5% neutral rate referenced by several ECB policymakers.” They stress that “neither we nor the broader consensus expect the ECB, or other major central banks, to validate the full extent of current market pricing.” Against this backdrop, TD says it “maintain[s] a bullish EURUSD year-end forecast” and has “recently expressed the view via 3m risk reversal to fade the broad-based USD rally.”
Kashkari questions policy tightness as resilient economy keeps Fed hawkish
Fed's Kashkari speech scores 7.1/10 on the FXS Speechtracker, notably above the 6.2/10 historical average, underscoring a firmer hawkish tone relative to the established baseline. By stressing that inflation remains “still too high” around 3% and highlighting a resilient economy with strong spending and employment, the remarks reinforce the case for keeping policy restrictive and even contemplating a higher neutral rate. The explicit penciling in of one more hike this year and another in 2027 signals a willingness to extend the tightening cycle if growth and inflation remain robust.
The FXS Fed Sentiment Index slipped by 0.42 points to 143.28, indicating a modest pullback in perceived hawkishness despite staying deep in hawkish territory. With the index well above the neutral 100 mark, the combination of a stronger-than-average FXS Speechtracker score and Kashkari’s openness to further hikes keeps the Dollar supported, even as markets reassess the pace and extent of future tightening.
Technical Analysis: EUR/USD maintains a bearish tone with oversold condition
In the daily chart, EUR/USD keeps a clear bearish near-term bias as spot holds beneath the 100-day simple moving average (SMA) and the Bollinger middle band. Price is pressed towards the lower end of the recent range, with the Bollinger lower band offering the closest technical floor, while the upper band marks the distant top of the current volatility envelope. The Relative Strength Index (14) at 22.5 sits deep in oversold territory, hinting that while downside pressure persists, the sell-off could be nearing exhaustion.
On the downside, immediate support is located at the Bollinger lower band around 1.1270, where bears may start to book profits or where fresh buying interest could emerge. On the topside, initial resistance appears at the Bollinger middle band near 1.1483, followed by the 100-day SMA at 1.1515, a more important barrier for any recovery attempt; a sustained break above these would be needed to ease the current bearish structure, with the upper Bollinger band around 1.1700 remaining a more distant objective.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
(This story was corrected at 04:00 GMT on Thursday to say that according to the CME FedWatch tool, traders are pricing in a 38.2% chance of a quarter-point rate hike this month, not next month.)
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Societe Generale’s Jan Groen reviews August US inflation and growth data, highlighting that Core PCE came in softer than expected but underlying price pressures in services remain firm. Benchmark revisions lowered measured inflation but still show it above levels consistent with the Federal Reserve’s target. Stronger consumption and GDP revisions suggest the US economy entered 2H26 with more momentum, keeping an October rate hike possible.
Core PCE soft but Fed still wary
"August inflation: Core PCE undershot expectations, but the details were less reassuring. Softer core goods inflation masked a reacceleration in core services and super-core inflation, pointing to still-firm underlying price pressures."
"Revisions and underlying inflation: Benchmark revisions lowered the level of inflation and corrected earlier overstatements, but the broader story is unchanged: underlying inflation has drifted higher over the past year and remains above levels consistent with the Fed’s target."
"Consumption, income and GDP: Revisions painted a stronger growth backdrop, with firmer real consumption, wage income and GDP growth in 1H26 than previously estimated. August spending was particularly robust, underscoring resilient household demand."
"Assessment and October FOMC implications: Inflation revisions were modestly favorable, but growth revisions were more important. The economy entered 2H26 with stronger momentum than previously thought, while underlying inflation remains too elevated to provide the Fed with clear comfort. A pause in October remains possible, but an October hike remains on the table pending September CPI and PPI data."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
TD Securities economists Oscar Munoz and Eli Nir assess US PCE and GDP revisions as broadly supportive for a firm US macro backdrop and a still-hawkish Federal Reserve stance. They highlight robust US growth, sticky inflation and upgraded GDP forecasts, arguing that lower inflation revisions do not materially alter the narrative for the US Dollar or Fed policy expectations.
Growth, inflation and Fed implications
"PCE and GDP revisions were a mixed bag with hawkish backward adjustments to growth and dovish adjustments to inflation. However, the underlying trend is the key story, and robust growth with rising inflation risks should continue to dominate the Fed's outlook. We still expect the Fed to lift rates in October, but can't discard a more gradual approach."
"Despite the larger-than-expected downward revisions to PCE inflation, we think the message remains hawkish on net. Underlying growth is solid, and inflation remains sticky."
"We have upgraded our Q3 GDP growth forecast to 3.0% q/q AR on the back of still firm consumer spending and capex. Domestic demand is strong."
"While news of lower inflation changes the intro to the story, it does little to change the underlying narrative. Consumer price changes remain sticky. We now expect core PCE inflation will close 2026 at 3.0% Q4/Q4, and at 2.5% next year."
"All in, today's data confirm the macro story that we and, more importantly, the Fed already knew: the US economy remains strong, consumer/capex spending is firm, corporate profits are rising, and inflation is sticky."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- Australian exports rebounded by 3.7% in August, helping the AUD maintain strength despite a narrowed overall Trade Surplus.
- Japan's third-quarter Tankan manufacturing index rose to 24, missing consensus expectations and weighing on sentiment for the yen.
- Bank of Japan policy summary hinted at further interest rate hikes following September's rise to a 31-year high.
AUD/JPY halts its seven-day losing streak, trading around 109.80 during Asian hours on Thursday. The currency cross remains stronger as the Australian Dollar (AUD) holds gains following the release of domestic Trade Balance data.
According to the Australian Bureau of Statistics, Australia's Trade Surplus narrowed to A$495 million month-over-month in August, down from a revised A$1,351 million in July. The narrowing came as imports climbed 5.8% MoM, reversing a 2.4% decline in July, while exports rebounded by 3.7% MoM following a 3.6% drop in the prior month.
On the other side of the currency cross, the Bank of Japan’s (BoJ) Q3 Tankan survey showed business sentiment improved slightly but missed market forecasts. Japan’s Large Manufacturing Index rose from 22 to 24, falling short of the expected 25, while the Non-Manufacturing Index eased to 35 against a consensus estimate of 36.
Meanwhile, the BoJ’s Summary of Opinions from its September policy meeting revealed that some members see a need to accelerate rate increases or move policy closer to target soon. Most members favored further hikes following September's rate increase to 1.25%, a 31-year high.
Strategists at Societe Generale point out that the Yen has stood out in G10 FX trading this month, with Kit Juckes noting that "the yen has been the strongest of the G10 currencies this month, and the market's reluctance to be caught out by intervention is clearly having an impact." He links the currency’s outperformance to heightened sensitivity around potential official action in Japan, arguing that expectations of further USD/JPY intervention are discouraging investors from rebuilding short Yen positions and encouraging a more cautious approach to Yen crosses.
Economic Indicator
Trade Balance (MoM)
The trade balance released by the Australian Bureau of Statistics is the difference in the value of its imports and exports of Australian goods. Export data can give an important reflection of Australian growth, while imports provide an indication of domestic demand. Trade Balance gives an early indication of the net export performance. If a steady demand in exchange for Australian exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the AUD.
Read more.Last release: Thu Oct 01, 2026 01:30
Frequency: Monthly
Actual: 495M
Consensus: -
Previous: 1,923M
Source: Australian Bureau of Statistics
- GBP/USD extends the overnight pullback from a one-week high amid a broadly firmer USD.
- Oil-driven inflation risks remain supportive of elevated US bond yields and support the USD.
- BoE rate hike bets could act as a tailwind for the GBP and limit deeper losses for spot prices.
The GBP/USD pair edges lower during the Asian session on Thursday, retreating further from levels beyond the 1.3300 mark, or a one-week high, touched the previous day. Spot prices currently trade just above mid-1.3200s, though a mixed fundamental backdrop warrants some caution before placing aggressive directional bets.
The British Pound (GBP) might continue to draw support from an upward revision of UK Q2 GDP growth to 0.4%, which reaffirmed bets for a 25-basis-point (bps) rate hike by the Bank of England (BoE) at the upcoming meeting on November 5. In contrast, the US PCE data, released on Wednesday, tempered expectations for an October Federal Reserve (Fed) rate hike. This acts as a tailwind for the GBP/USD pair, though the prevailing US Dollar (USD) buying interest caps the upside.
According to CME Group's FedWatch Tool, traders are still pricing in around an 87% chance that the US central bank will raise borrowing costs by the end of this year. Adding to this, oil-driven inflation fears keep US bond yields elevated near multi-year highs. This, along with persistent geopolitical uncertainties stemming from the US-Iran standoff, assists the safe-haven Greenback in preserving its recent strong gains to a two-month high and warrants some caution for GBP/USD bulls.
Traders now look forward to the US economic docket – featuring the usual Weekly Initial Jobless Claims and the ISM Manufacturing PMI. Apart from this, speeches from a slew of influential FOMC members and further developments surrounding the Middle East crisis will drive the USD. The focus, however, will remain glued to the US Nonfarm Payrolls (NFP) report, due on Friday, which will determine the USD trajectory and provide some meaningful impetus to the GBP/USD pair.
GBP/USD daily chart
Technical Analysis
The GBP/USD pair keeps a bearish near-term tone following the overnight failure near the 23.6% Fibonacci retracement level of the August-September downswing. Moreover, successive overhead barriers at 1.3383 and 1.3439 reinforce a downside bias as spot prices consolidate closer to the lower end of the recent range.
Meanwhile, a daily close above these hurdles would be needed to ease the bearish pressure. On the downside, the structural anchor of the move at 1.3203 acts as initial support, and a break below this floor would expose fresh lows in the current bearish cycle.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
- AUD/USD softens to near 0.6945 in Thursday’s early Asian session.
- Australia’s Trade Surplus shrinks sharply to AUD$495M in August.
- Markets see Fed October rate hike chances at 38.2%.
The AUD/USD pair trades with mild losses around 0.6945 during the early Asian session on Thursday. The Australian Dollar (AUD) edges lower against the US Dollar (USD) following Australia's Trade Balance data. Traders await the US weekly Initial Jobless Claims report and the Fedspeak later in the day.
Data released by the Bureau of Statistics on Thursday showed that Australia’s Trade Surplus narrowed sharply to AUD$495 million in August, compared to a surplus of A$1,351M in the previous reading (revised from A$1,923M).
Meanwhile, the country’s Exports rose by 3.7% MoM in August, versus a fall of 3.6% prior (revised from -3.3%). Imports climbed by 5.8% MoM in August, compared to a decline of 2.4% in the previous reading (revised from -2.5%).
On the other hand, signs of softer inflation in the US have reduced expectations for an immediate Federal Reserve (Fed) rate hike. This, in turn, could weigh on the Greenback and act as a tailwind for the pair. The headline Personal Consumption Expenditures (PCE) Price Index climbed 3.4% YoY in August after a downwardly revised 3.4% in July, below the market consensus of 3.7%.
The Core PCE, which excludes the so-called more volatile food and energy components, increased 3.0% YoY in August, versus a downwardly revised 3.0% advance in July, cooler than the 3.3% expected.
Financial markets now see about a 38.2% odds of a rate hike in October, down from about 45% before the US PCE data, according to the CME FedWatch Tool.
RBA seen on hold as Australia real estate weakness underscores lagged tightening
Commerzbank’s Volkmar Baur cautions that the impact of past RBA tightening is still working its way through the economy, stressing that “interest rate hikes always take effect with a certain time lag, and particularly with regard to the real estate market.” He points to fresh signs of strain in housing, noting that “building permits fell again in August by 6.1% compared to the previous month and prices in the largest cities continue to decline.” Against that backdrop, Baur argues that the “RBA would likely be well advised to wait and see how things develop in the coming months,” reinforcing the view that additional near-term support for the Aussie from further rate hikes may be limited.
Technical Analysis: AUD/USD remains capped under the 100-day SMA
In the daily chart, AUD/USD keeps a bearish near-term tone as spot holds beneath the 100-day simple moving average (SMA) and the Bollinger middle band. Price is only marginally above the lower Bollinger band, suggesting the pair is pressing into the lower edge of its recent range, while the Relative Strength Index (14) at 26.8 sits in oversold territory, hinting that downside momentum is stretched but not yet reversed.
On the topside, initial resistance is located at the 100-day SMA near 0.7060, with the Bollinger middle band around 0.7100 acting as a secondary cap before the upper band at 0.7272 comes into view. On the downside, immediate support is provided by the lower Bollinger band at 0.6925, and a sustained break beneath this floor would reinforce the prevailing bearish bias, exposing further losses toward lower levels not yet defined by the current indicator set.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
In its Financial Stability Review (FSR) published on Thursday, the Reserve Bank of Australia (RBA) said that “households and businesses are well placed to weather a slower economy and falling house prices.”
Additional takeaways
Even if house prices fell a further 20%, only 5% of mortgages would be in negative equity.
Less than 1% of borrowers in negative equity, houshold balance sheets remain strong.
Banks well positioned to weather a material deterioration in housing market.
Pockets of stress in households and business, but resilient overall with low loan arrears.
Most businesses well placed to manage elevated costs, some passing on to customers.
Share of owner-occupier borrowers with cash flow shortfall still low at around 2%.
Cash flow pressures to increase for smaller businesses, energy-intensive firms.
Major risks to domestic financial stability coming from abroad.
Lending standards remain sound, riskier forms of lending restrained.
AI funding globally is growing more opaque, circular and at risk of profit disappointment.
Private credit not yet a threat to overall financial stability in Australia.
Private credit has grown significantly in Australia, but still only small overall.
Rise of leveraged investors in bonds, AI equities amplifies volatility and adds to risks.
High asset prices, leverage mean world markets vulnerable to disruptive pullback.
Market reaction
At the time of writing, AUD/USD is holding steady at 0.6944, with little movement from the above report.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
Australia's Trade Balance narrowed to A$495M MoM in August, followed a surplus of A$1,351M in the previous reading (revised from A$1,923M), according to the latest foreign trade data published by the Australian Bureau of Statistics on Thursday.
Further details reveal that Australia's Exports rose by 3.7% MoM in August from a fall of 3.6% seen a month earlier (revised from -3.3%). Meanwhile, Imports climbed by 5.8% MoM in August, compared to a decrease of 2.4% seen in July (revised from -2.5%).
Market reaction to Australia’s Trade Balance
The Australian Dollar (AUD) has little to no impact following the Australia’s Trade Balance report. At press time, the AUD/USD pair is trading at 0.6944, losing 0.02% 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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