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• Australian Dollar recovers from the 10-month low after upbeat Aussie data.
• Australia’s monthly Private Sector Credit rose 0.4% compared to the expected 0.3%.
• US Dollar retreats after the moderate economic data released on Thursday.

The Australian Dollar (AUD) extends its gains on the second successive day on Friday. The AUD/USD pair recovers from recent losses, primarily supported by a correction in the US Dollar (USD) due to a pullback in US Treasury yields. Additionally, the Aussie pair gets minor support from the Australian upbeat Private Sector Credit (MoM) data.

Australia’s Bureau of Statistics (ABS) on Thursday revealed Retail Sales rose in August on a monthly basis below the market consensus. The soft consumer spending data in August might convince the Reserve Bank of Australia (RBA) to keep the interest rate unchanged next week.

However, Australia's monthly Consumer Price Index (CPI) improved from July's reading, which could be attributed to the increasing energy prices. The rise in inflation could increase the likelihood of another interest rate hike.

The US Dollar Index (DXY) snapped a winning streak after the moderate datasets from the United States (US). Gross Domestic Product (GDP) remained consistent as expected. Initial Jobless Claims for unemployment benefits printed a lower reading than the market consensus.

The US Dollar (USD) rallied during the week due to robust macros and reached its highest levels since December. Additionally, the USD’s strength is attributed to the positive performance of US Treasury yields. However, the yield on the 10-year US Treasury note has retreated from record highs.

Daily Digest Market Movers: Australian Dollar retraces recent losses due to a pullback in the US Dollar

• AUD/USD attempts to extend gains, trading around 0.6430 at the time of writing during early Asian trading hours on Thursday.
• Australian Private Sector Credit (MoM) for August rose 0.4%, exceeding the market consensus to remain consistent at 0.3%. While the yearly readings rose 5.1%, slightly lower than the previous reading of 5.3%. 
• The Aussie Dollar could further face challenges due to increased risk aversion sentiment in the market.
• Australian Retail Sales for August, fell to 0.2% from the previous rate of 0.5%. The index was expected to grow at a 0.3% rate.
• Australia’s Monthly Consumer Price Index (CPI) year-over-year for August rose 5.2% as expected, up from the previous rate of 4.9%.
• US GDP remained consistent at 2.1% as expected. Initial Jobless Claims for the week ending on September 22, printed a lower reading of 204K than the market consensus of 215K, which was 202K prior.
• US Pending Home Sales showed a decline of 7.1%, exceeding the market expectation of a 0.8% fall, swinging from the 0.9% rise previously.
• Chicago Fed President Austan Goolsbee expressed confidence that the Fed will bring inflation back to its target. Goolsbee also highlighted the rare opportunity to achieve this without a recession, indicating the US Federal Reserve’s (Fed) commitment to managing inflation while sustaining economic growth.
• Fed President Thomas Barkin acknowledged that recent inflation data has been positive but emphasized that it's premature to determine the future course of monetary policy. Barkin also noted that the data lost during a government shutdown could complicate the understanding of the economy.
• Traders await the US data such as the Core Personal Consumption Expenditure (PCE) Price Index, the Fed's preferred measure of consumer inflation, which is due on Friday. The annual rate is expected to reduce from 4.2% to 3.9%.

Technical Analysis: Australian Dollar moves toward 0.6450, the barrier at 26.6% Fibo

The Australian Dollar trades higher around 0.6440 aligned with the 0.6450 psychological level on Friday. A firm break above the latter could support the Aussie Dollar (AUD) to explore the region around 26.6% Fibonacci retracement at 0.6464. On the downside, the monthly low at 0.6331, followed by the 0.6300 psychological level could act as the key support.

AUD/USD: Daily Chart

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AUSTRALIAN DOLLAR FAQS

What key factors drive the Australian Dollar?

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.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

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.

How does the health of the Chinese Economy impact the Australian Dollar?

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.

How does the price of Iron Ore impact the Australian Dollar?

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.

How does the Trade Balance impact the Australian Dollar?

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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