Australian Dollar edges higher above 0.7200 on rising RBA hike bets, eyes on US NFP data

The AUD/USD pair gathers strength to near 0.7210 during the early European session on Friday. The US Dollar (USD) weakens against the Australian Dollar (AUD) following Federal Reserve (Fed) Governor Christopher Wallers remarks. Markets might turn cautious ahead of the US August employment report later on Friday.

Traders reduce their bets on a US rate hike at this month's meeting after Waller‘s speech on Thursday, undermining the Greenback. Waller said that he is leaning toward keeping interest rates steady at the Fed’s September meeting provided there are no surprises from upcoming inflation data.

Markets are now pricing in nearly a 50.2% probability of a quarter-point hike in September, down from 63.2% on Wednesday, according to the CMEs FedWatch tool.

The US August jobs data will be the highlight later in the day as it might offer some hints about the US interest rate path. Economists predict the Nonfarm Payrolls (NFP) to show 56,000 jobs addition in August. Meanwhile, Unemployment Rate is expected to remain unchanged at 4.1% during the same period.

Australia's economy grew 0.4% QoQ in the second quarter (Q2), slightly beating forecasts, according to the Australian Bureau of Statistics (ABS) on Wednesday. This report has further raised the prospect of an interest rate hike as soon as this month.

Traders have pushed up the chance of a September rate hike by the Reserve Bank of Australia (RBA) to about 70%, up from 50% ahead of the data, according to Bloomberg analysis of futures market pricing.

Rabobank‘s Global Daily highlights that the latest trade data showed a modest softening in Australia’s external position, with analysts noting that the July trade figures “released this morning showed a small that expected reduction in the monthly trade surplus,” alongside “an upward revision to Junes figure.” The bank suggests that this combination of a narrower current surplus and stronger prior-month performance will be in focus ahead of upcoming remarks from RBA Chief Economist Hunter to the Australian Senate, as markets look for further insight into how the central bank interprets recent shifts in external balances and domestic conditions.

Feds Waller delivered a mildly less hawkish tone, with the FXS Speechtracker score at 6.1 versus a 6.3 historical average, but kept a clear tightening bias conditional on August inflation. The key remark that policy will likely be held steady in September if disinflation continues, yet a “hot” print could trigger a hike, underscores a finely balanced reaction function that keeps upside risk to rates alive even as Waller notes improving underlying inflation and solid growth. Overall, the message is one of cautious optimism on disinflation, but with a low tolerance for any renewed inflation acceleration that would support a “small adjustment” higher in the policy rate.

The FXS Fed Sentiment Index fell by 2.06 points to 125.38, signaling a modest pullback in perceived hawkishness relative to recent communications captured by the FXS Speechtracker. However, with the index still well above the neutral 100 mark, the Fed remains firmly in hawkish territory, indicating that markets should continue to price a meaningful probability of further tightening despite the softer tone.

In the daily chart, AUD/USD trades at 0.7209, maintaining a bullish near-term bias as it holds above the 100-day simple moving average (SMA) at 0.7079 and the Bollinger middle band around 0.7133. The pair is pressing toward the Bollinger upper band near 0.7232, while the Relative Strength Index (RSI) at about 67 stays in constructive territory, suggesting upside momentum is still intact but approaching overbought conditions.

On the downside, initial support emerges at the Bollinger middle band around 0.7133, ahead of the 100-day SMA at 0.7079 and the lower Bollinger band near 0.7033 if a deeper pullback unfolds. On the topside, the immediate resistance is the Bollinger upper band at 0.7232, and a sustained break above this ceiling would open the door for further gains in the broader uptrend.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

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 Australias 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 Australias 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.