AUD/USD retargets the 0.6400 region and gets rejected
- Aussie recovers from Friday’s strong decline as US Dollar slips.
- Trump’s next tariff moves keep the global trade outlook on edge.
- RBA’s cautious stance on further easing resonates with markets.
- Investors watch upcoming Australian inflation data for policy cues.
AUD/USD managed to regain some upside traction and reverse Friday’s strong decline, revisiting the vicinity of the 0.6400 mark but then buyers quickly rejected it. During the American session, United States (US) President Donald Trump confirmed tariffs against Mexico and Canada’s goods but didn’t offer further details on its policy plans on China.
Daily digest market movers: Aussie eyes RBA CPI outlook as trade tensions linger
- US President Donald Trump indicated possible 25% tariffs on cars, pharmaceuticals, semiconductors, and lumber, potentially starting in the coming weeks, which could reignite global trade worries.
- The Australian Dollar (AUD) trades in a cautious stance as market participants anticipate monthly Consumer Price Index (CPI) data for January, projected to accelerate by 2.6% from December’s 2.5%.
- Last week, the Reserve Bank of Australia (RBA) trimmed its Official Cash Rate (OCR) for the first time since November 2020 but reiterated that its fight against inflation is not complete, offering cautious guidance on further easing.
- In a quieter start to the trading week, the US Dollar (USD) alternated between minor gains and losses.
AUD/USD technical outlook: Momentum stalls at 100-day SMA as indicators show signs of fatigue
The AUD/USD pair mildly rose to a higher zone on Monday, but it encountered robust resistance at the 100-day Simple Moving Average, leading to a partial retracement. The Relative Strength Index (RSI) sits in the upper positive territory yet is declining, suggesting that the bulls might be losing momentum. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram prints flat green bars, reinforcing the idea of a waning uptrend.
While the pair remains above its 20-day Simple Moving Average, any move failing to maintain traction above the 100-day SMA does not necessarily indicate a structural shift. The pair could either slip lower or oscillate between the referenced resistance and the 20-day SMA, depending on fresh data and evolving trade narratives.
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.