Australian Dollar slides to 0.70 as US ISM PMI, revives the US Dollar
- AUD/USD retreats to 0.7000 as Dollar recovers on strong ISM.
- Oil slump eases Fed hike bets, but data supports Greenback.
- US jobs data next as Australia sentiment indicators enter focus.
The Aussie Dollar retraces despite an overall risk-on mood as the US Dollar recovers some ground, sponsored by positive data, and easing geopolitical tensions in the Middle East. The AUD/USD trades at 0.7000 after reaching a daily high of 0.7050.
AUD/USD retreats from session highs as stronger US factory data offsets risk-on mood
Progress in US-Iran talks tumbled Oil prices, with the US Oil benchmark, West Texas Intermediate (WTI), losing over 7.70% to $80 per barrel. This eased expectations for higher interest rates from the Federal Reserve, but market participants were also digesting two days of intervention in the FX markets to propel the undervalued Japanese Yen.
The US ISM Manufacturing PMI for July came at 55.6, up from 53.3, its highest level since 2022, while the sub-components of employment showed that companies are hiring, but the prices paid revealed elevated input costs. Even though the sub-components' readings are mixed, overall, they reveal the strength of the US manufacturing industry.
Ahead, the US economic calendar will be busy, with employment data taking the center stage. The ADP Employment Change, JOLTS job openings survey, jobless claims, and Nonfarm Payrolls will provide updates on the status of the labor market. If the jobs market remains solid, next week’s inflation data could move the needle sharply, as the Federal Reserve remains laser-focused on tackling five years of high inflation.
New York Fed President John Williams commented that monetary policy is well-positioned to return inflation to the 2% goal. He added that if the economy appears unlikely to push inflation to its target, they wouldn’t hesitate to increase rates. However, he remains optimistic that inflation could aim towards the central bank’s target.
In Australia, the Aussie Dollar opened the session on a higher note, due to the intervention by US and Japanese authorities in the FX markets. Nevertheless, as the Yen crosses weakened, the Aussie weakened.
The economic docket in Australia will feature the release of ANZ job advertisements for June and the ANZ-Roy Morgan Australian Consumer Confidence.
AUD/USD Price Forecast: Technical outlook
In the daily chart, AUD/USD trades at 0.6999, with the near-term bias capped as the latest reading of the triple simple moving average (50, 100 and 200-day composite) at 0.7007 sits just above spot as immediate resistance. Price is effectively testing an upward-sloping trend-line cluster originating from 0.6833 and 0.6865, keeping the broader uptrend structure intact, while the Relative Strength Index (14) around 52 suggests neutral-to-slightly constructive momentum rather than strong directional conviction.
On the topside, the first hurdle is the grouped longer-term simple moving averages acting as resistance at 0.7007, and a daily close above this barrier would open the way for further recovery toward higher levels on the chart. On the downside, failure to hold the current trend-line pivot zone around 0.6999 would expose a deeper pullback into the broader ascending support structure, with the pair likely to retreat toward prior swing lows within that rising channel.
(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.
