The AUD/USD pair is trading 0.10% lower near 0.6645 during the Asian trading session on Monday. The Australian pair is under pressure as China’s National Bureau of Statistics announced unexpectedly weak Chinese retail sales and industrial production data for November.
The impact of the dramatic change in Chinese domestic data remains significant for the Australian Dollar (AUD), given the Australian economy’s increasing dependence on its exports to Beijing.
Retail sales in China rose 1.3% year-on-year in November, when they were expected to rise steadily by 2.9%. Industrial production data came in at 4.8%, down from 4.9% in October. Economists expected factory data to rise by 5%.
The Australian dollar has corrected over the last two trading days, following the release of weak November labor market data. Data released on Thursday showed that the economy lost 21.3 thousand jobs in November, while it was expected to add 20 thousand new workers, raising concerns about the strength of the labor market.
Meanwhile, the broader outlook for the Australian pair remains strong as the US dollar struggles to regain strength amid hopes that the Federal Reserve (US central bank) will cut interest rates in 2026 more than it expected at its policy meeting last week. In the policy announcement on Wednesday, the Fed’s bullet chart showed that policymakers collectively expect the federal funds rate to fall to 3.4% by the end of 2026, suggesting there will be only one rate cut next year.
This week, the main catalyst for the US dollar will be the US non-farm payrolls data for November, which will be released on Tuesday.
Frequently asked questions about the Australian dollar
One of the most important 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 major driver is the price of its largest export, iron ore. The health of the Chinese economy, its largest trading partner, is one factor, in addition to Australia’s inflation, its growth rate and its trade balance. Market sentiment – whether investors are snapping up riskier assets (risk on) or looking for safe havens (risk off) – is also a factor, with risk appetite positive for 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 affects the level of interest rates in the economy as a whole. The RBA’s main objective 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 Australian dollar, and relatively low interest rates. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former being AUD negative and the latter AUD positive.
China is Australia’s largest trading partner, so the health of the Chinese economy has a major impact on the value of the Australian Dollar (AUD). When the Chinese economy is performing well, it buys more raw materials, goods and services from Australia, which raises demand for the Australian dollar, raising its value. The opposite is the case when the Chinese economy does not grow as quickly as expected. Therefore, positive or negative surprises in Chinese growth data often have a direct impact on the Australian dollar and its crosses.
Iron ore is Australia’s largest export, representing $118 billion annually according to 2021 data, and China is its main destination. Therefore, the price of iron ore could be a driver of the Australian dollar. In general, if the price of iron ore rises, the Australian dollar also rises, as overall demand for the currency increases. The opposite is the case if the price of iron ore falls. Higher iron ore prices also tend to increase the likelihood of a positive trade balance for Australia, which is also positive for the Australian dollar.
The balance of trade, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can affect the value of the Australian dollar. If Australia produces highly sought-after exports, its currency will gain value from the excess demand generated by foreign buyers seeking to buy its exports in exchange for what it spends to buy imports. Therefore, a positive net trade balance strengthens the Australian dollar, with the opposite effect if the trade balance is negative.
