- AUD/USD moves higher on Tuesday, approaching the 0.6300 zone as the US Dollar weakens.
- US economic uncertainty weighs on the Greenback, with investors awaiting key inflation data.
- Technical indicators remain subdued, though AUD/USD recovered after holding a key support area.
The AUD/USD pair rises to near 0.6300 as the US Dollar (USD) slides due to an uncertain United States (US) economic outlook. The pair benefits from a softer Greenback as investors focus on upcoming inflation data, which could influence Federal Reserve (Fed) policy expectations. However, persistent concerns over trade tensions and global growth continue to cap upside potential for AUD/USD.
Daily digest market movers: Australian Dollar strengthens as US Dollar declines
- The US Dollar Index (DXY) fell to new multi-month lows near 103.20, pressured by declining bond yields and speculation about a potential US economic slowdown. Market participants are focused on upcoming data releases, including inflation figures, MBA Mortgage Applications, and the EIA’s crude oil inventory report.
- Market caution surrounding trade policies and economic recession risks in the US kept gains in check. AUD/USD fluctuated around the 0.6280-0.6270 zone, while the US Dollar Index hovered near 103.30, marking its weakest level since early October.
- Commodity markets provided limited support for the Aussie. Copper and iron ore prices attempted to recover after recent declines, though concerns over slowing global demand kept gains subdued.
- Trade negotiations between the US and Canada remain in focus. Ontario Prime Minister Doug Ford agreed to suspend planned electricity export tariffs following emergency discussions with US officials. The move comes after US President Donald Trump threatened a 50% tariff on Canadian steel and aluminum, further escalating trade tensions.
- Investors are closely watching US inflation data, which is expected to be a key factor in shaping Federal Reserve policy expectations. A higher-than-expected CPI reading could reinforce the case for a prolonged period of restrictive monetary policy.
AUD/USD Technical Analysis: Gains hold but momentum remains weak
AUD/USD rose on Tuesday, moving toward the 0.6300 region during the American session. The pair recovered from earlier losses as the US Dollar weakened, though technical indicators suggest that momentum remains fragile.
The Moving Average Convergence Divergence (MACD) indicator continues to print decreasing red histogram bars, reflecting weakening bearish momentum. Meanwhile, the Relative Strength Index (RSI) is at 48, mildly rising but still in negative territory, indicating cautious sentiment.
The pair is attempting to regain traction but is struggling to hold above its 20-day Simple Moving Average (SMA). A failure to establish support above this level could expose AUD/USD to further downside, with key support emerging near 0.6250. On the upside, resistance is seen around 0.6320, where a break could open the door for further gains.
Australian Dollar FAQs
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.
