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18 Mar 2025
AUD/USD rebound halts amid cautious sentiment ahead of Fed
- The AUD/USD struggles to maintain gains, hovering near the 0.6350 zone as bullish momentum fades.
- China’s economic stimulus provided initial support, but investors turn cautious ahead of key US data.
- Technical indicators suggest consolidation, with the pair facing resistance near recent highs.
The AUD/USD rebound halts near 0.6350 as market caution prevails. The pair lost momentum on Tuesday after initially benefiting from renewed optimism surrounding China’s economy. The Australian Dollar found support from Beijing’s special action plan to boost household incomes and domestic consumption. However, investors shifted to a cautious stance ahead of the Federal Reserve’s monetary policy decision on Wednesday, where the dot plot and Summary of Economic Projections (SEP) will provide further clarity on future interest rate moves.
Daily digest market movers: Australian Dollar loses steam ahead of Fed decision
- The Australian Dollar’s rally stalled on Tuesday, with AUD/USD struggling to hold recent gains as traders reassessed risk sentiment. Despite optimism from China’s economic measures, uncertainty ahead of the Federal Reserve’s policy outlook kept market participants cautious.
- China’s stimulus efforts remain in focus. The country’s special action plan aims to strengthen household income and improve domestic spending, which is crucial for Australia’s export-driven economy. However, lingering concerns over the global trade environment limited further upside for the Aussie.
- The Federal Reserve’s dot plot and SEP take center stage. Investors are looking for updates on the Fed’s stance regarding interest rates, inflation, and economic growth projections. In December, Fed officials anticipated two rate cuts in 2025, and any changes could impact US Dollar direction.
- The Reserve Bank of Australia (RBA) is expected to remain cautious regarding future interest rate moves. Inflationary risks linked to US trade policies and tariffs continue to pose challenges, adding to the uncertainty surrounding the RBA’s next steps.
- Australian labor market data, scheduled for March 20, will be a key driver for AUD/USD in the coming sessions. Any unexpected shifts in employment figures could influence expectations for RBA policy decisions.
AUD/USD technical analysis: Rebound momentum fades as resistance holds
The AUD/USD moved toward the 0.6350 region on Tuesday but failed to extend its advance, signaling a loss of momentum. The pair struggled to clear key resistance levels, prompting a period of consolidation.
The Moving Average Convergence Divergence (MACD) indicator printed a fresh green bar, suggesting lingering bullish bias, but momentum appears to be weakening. Meanwhile, the Relative Strength Index (RSI) is at 63, reflecting a slowing upward trend as buyers hesitate near resistance.
The pair remains above the 20-day and 100-day Simple Moving Averages (SMA), maintaining a broadly positive outlook. However, resistance near 0.6370 continues to cap upside potential. On the downside, initial support lies around 0.6320, with stronger demand expected near 0.6280 if selling pressure increases.
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.