Australian Dollar steady as USD struggles to maintain upside
- AUD adds 0.25% against the USD, nearing the 0.6300 barrier on Thursday.
- Surging US yields lend only modest support to the Greenback.
- Traders see a 60% chance of an RBA rate cut next month.
AUD/USD added to Wednesday’s mild rise and advanced toward the 0.6300 region, drawing support from a subdued US Dollar and an upswing in riskier assets. Despite the Greenback attempting to steady itself around the 108.00 zone, market participants continued to parse details from President Donald Trump’s latest statements at the World Economic Forum in Davos, where he criticized trade deficits, pledged more tax cuts, and signaled potential changes in energy and defense policies.
Daily digest market movers: Aussie recovers while markets assess fresh Trump signals
- The Australian Dollar oscillated in the upper end of the weekly range, though it stalled again near the 0.6300 threshold.
- The US Dollar Index (DXY) briefly advanced on Thursday, adding to the prior session’s gains around 108.00, drawing strength from climbing US yields.
- After weeks of a solid USD rally, driven by the so-called “Trump trade,” the Aussie finally recouped some losses, aided by Greenback consolidation.
- On Thursday, US President Donald Trump railed against trade imbalances, specifically singling out Canada’s 4% share of the overall US deficit, reiterated calls for deeper tax cuts, and again pressed OPEC to lower crude oil prices. He also pledged to drastically cut US spending deficits and indicated a desire to influence Federal Reserve policy.
- Regarding the Reserve Bank of Australia, market participants still price in a 60% probability of a rate cut in February, reflecting the country’s muted economic momentum.
- Commodity markets send mixed signals; copper recovers slightly, while iron ore remains at elevated levels but trades sideways.
AUD/USD technical outlook: Bulls hold 20-day average
The AUD/USD rose by 0.25% to 0.6290 on Thursday, staging another attack on the 0.6300 resistance. The Relative Strength Index (RSI) has jumped to 55, firmly in positive territory, while the MACD histogram displays rising green bars, signaling sustained bullish intent.
Notably, buyers are building support around the 20-day Simple Moving Average (SMA). If the pair can consolidate past 0.6300, further recovery may lie ahead, though persistent concerns over China’s economic pace and potential Australian central bank easing could temper any lasting upside.
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.