Key Points:
The Australian dollar (Symbol: AUDUSD) marched towards four-month highs, priced above $0.67, as fresh stimulus in China and bets for interest rate cuts in the US boosted commodity prices, lifting sentiment in the Australian markets.
SEE: The Aussie reacts strongly on the VT Markets trading app
Late last week, China announced a broad package to support its struggling property market. This includes the relaxation of mortgage rules and urging local governments to buy unsold homes.
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These measures are aimed at reviving the property sector, which is a crucial part of the Chinese economy. As a major trading partner of China, the Australian economy often benefits from positive developments in China.
On top of trade partner China, the Australian dollar is also benefiting from expectations of interest rate cuts in the US. Lower interest rates decision by the Fed typically weakens the US dollar, making other currencies, including the Aussie, more attractive.
This dynamic is further supported by rising commodity prices, as Australia is a major exporter of commodities like iron ore and coal.
Domestically, investors are looking forward to the meeting minutes of the Reserve Bank of Australia (RBA) for clues on the latest policy of rates path. Last week, data showed that the unemployment rate in Australia has increased more than anticipated to 4.1% in April from 3.8% in March.
Such a rise in unemployment also followed data showing domestic wage growth unexpectedly slowed in the first quarter.
These developments have prompted markets to price out any chance of further interest rate hikes from the RBA. This is the same reason why the Australian dollar dipped last week.
The recent rise of the Australian dollar highlights the impact of global and domestic economic factors on currency markets. With stimulus measures in China, interest rate cut expectations in US and domestic economic indicators of Australia all in play, traders should approach the market with a balanced perspective.
They should balance both fundamental and technical analysis in navigating the current economic environment.
With such opportunities being presented in the market, traders can consider looking into currency pairs related to the AUD, such as AUDUSD, AUDJPY, AUDCHF and AUDCAD.
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