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22 Jan 2025
Australian Dollar holds near monthly highs as tariffs worries cool
- The Aussie inches up to 0.6280 on Wednesday.
- Trump’s softer-than-expected China tariffs stance underpins mild risk appetite.
- Investors await January’s flash US S&P Global PMI data for fresh direction.
AUD/USD rises to a new monthly high just below 0.6300, helped by signs that United States (US) tariffs on China may not be as harsh as initially feared. Meanwhile, the US Dollar (USD) recovers slightly from multi-day lows, reflecting ongoing uncertainty regarding future US trade policies. Market participants look forward to the upcoming flash S&P Global PMI numbers for January to gauge broader economic sentiment.
Daily digest market movers: Aussie extends gains while markets await fresh drivers
- The amount of China-specific tariffs proposed under Donald Trump’s revised plan appears significantly smaller than originally anticipated, calming some market nerves.
- The US Dollar briefly slumped to a fresh two-week low near 107.75 before staging an intraday rebound, with the Dollar Index (DXY) edging higher.
- Traders brace for the US S&P Global PMI for January release on Friday for clues about near-term economic trends.
- On the negative tone for the Aussie, the Reserve Bank of Australia (RBA) is considering a potential rate cut at its upcoming February meeting to counter moderate domestic growth and receding inflation.
- In addition, the AUD also contends with subdued consumer sentiment, softer commodity performance, and sluggish demand from key trade partner China.
AUD/USD technical outlook: The pair stays in a 0.6180–0.6280 range with a mildly positive bias
AUD/USD mildly rose to 0.6280 on Wednesday, extending its choppy price action and the pair has oscillated between 0.6180 and 0.6280 in the first weeks of January. The Moving Average Convergence Divergence (MACD) histogram prints rising green bars but remains fairly flat, signaling modest bullish momentum. The Relative Strength Index (RSI) stands at 60, climbing upward yet flattening slightly, indicating a cautious tilt toward buyers. A sustained push above 0.6300 could strengthen the recovery, whereas a dip beneath 0.6180 might rekindle near-term selling pressure.
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.