Australian Dollar trades lower as markets brace for hawkish cut
- Aussie nears 0.6300 as risk-off mood dominates.
- Fed decision looms, fueling US Dollar strength.
- China’s woes and Trump tariffs curb Aussie’s appeal.
The Australian Dollar approaches 0.6300, weighed by broad risk aversion ahead of the Federal Reserve’s (Fed) policy announcement and lingering China-related concerns. The US Dollar remains robust as investors brace for a “hawkish cut,” with the Fed expected to reduce rates but signal fewer 2025 cuts. Weak Chinese data and potential US tariffs further limit the Aussie’s upside.
Daily digest market movers: Aussie stands around 0.6300 ahead of Fed
- Investors nearly fully price a 25-basis-point Fed cut to 4.25%-4.50%, but fear a “hawkish cut” limiting future easing.
- The Federal Reserve’s revised Summary of Economic Projections may alter interest rate, inflation and growth forecasts, influencing the pair’s direction.
- The US Dollar Index benefits from risk aversion, as global equities struggle with geopolitical tensions and tighter policy prospects.
AUD/USD technical outlook: Aussie tests oversold limits as downtrend persists
The AUD/USD pair declined by 0.6% to 0.6300 on Wednesday, reaching its lowest level since October 2023. The Relative Strength Index (RSI) sits at 30, nearing oversold territory and falling sharply. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram displays rising red bars, underscoring sustained bearish momentum. Although oversold signals hint at a possible corrective bounce, ongoing Fed uncertainty and China’s frail recovery cast a shadow over any lasting rebound.
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.