Australian Dollar continues gaining, investors adjust to US Inflation figures

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.