- The pair jumped 0.42% to 0.6315 on Friday, supported by broad risk appetite.
- Trump expresses his willingness to avoid tariffs on China and offers hints for a trade agreement.
- Fed rate cut bets and upbeat sentiment are weighing on the US dollar.
- Traders are evaluating the latest US Purchasing Managers’ Index (PMI) data amid a potential shift in risk dynamics.
The AUD/USD pair attracted buyers on Friday after President Trump signaled that a trade agreement with China was still within reach, reinforcing a risk-on mood. The pair advanced to 0.6315, heading for its first weekly gain in three weeks. Meanwhile, renewed speculation about additional interest rate cuts by the Federal Reserve in 2025 continues to undermine the US dollar, providing additional support to the Australian dollar.
Daily summary of market drivers: The Australian dollar continues its recovery as the US dollar remains weak
- The US dollar fell to a one-month low as markets priced in the possibility of further easing by the Federal Reserve by the end of the year. Additionally, President Trump’s statements regarding immediate interest rate cuts are contributing to the recent decline of the US dollar.
- A potential interest rate cut by the Reserve Bank of Australia (RBA) in February and weak economic growth may limit the upside for the Australian dollar.
- On the US front, the S&P Global Composite PMI slowed to 52.4 from 55.4, with manufacturing rising to 50.1 and services falling to 52.8. Analysts point to increasing optimism in the manufacturing sector, anticipating supportive policies under the Trump administration.
- The US President indicates his unwillingness to impose customs duties on China, indicating the possibility of finalizing the trade agreement. He also reiterates grievances over the trade deficit with various countries, including Canada, while calling on OPEC to lower crude oil prices.
AUD/USD Technical Outlook: Short-term signals have become more optimistic, indicating a possible breakout
The AUD/USD pair rose to 0.6315 on Friday, extending its recent winning streak and approaching 0.6330. In the short term, technical indicators tend to build: the Moving Average Convergence Divergence (MACD) histogram shows bullish green bars, indicating an emerging shift towards bullish momentum. The Relative Strength Index (RSI) stands at 58 and is rising sharply, indicating strong upward pressure.
This combination indicates that the pair may be on the verge of a more pronounced recovery. A decisive break above 0.6330 would confirm a broader turnaround.
Frequently asked questions about the Australian dollar
One of the most important 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 major driver is the price of its largest export, iron ore. The health of the Chinese economy, its largest trading partner, is one factor, as well as Australia’s inflation, growth rate and trade. balance. Market sentiment – whether investors are snapping up riskier assets (risk on) or looking for safe havens (risk off) – is also a factor, with risk appetite positive for the Australian dollar.
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 affects the level of interest rates in the economy as a whole. The RBA’s main objective 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 Australian dollar, and relatively low ones do the opposite. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former being AUD negative and the latter AUD positive.
China is Australia’s largest trading partner, so the health of the Chinese economy has a major impact on the value of the Australian Dollar (AUD). When the Chinese economy is performing well, it buys more raw materials, goods and services from Australia, which raises demand for the Australian dollar, raising its value. The opposite is the case when the Chinese economy does not grow as quickly as expected. Therefore, positive or negative surprises in Chinese growth data often have a direct impact on the Australian dollar and its crosses.
Iron ore is Australia’s largest export, representing $118 billion annually according to 2021 data, and China is its main destination. Therefore, the price of iron ore could be a driver of the Australian dollar. In general, if the price of iron ore rises, the Australian dollar also rises, as overall demand for the currency increases. The opposite is the case if the price of iron ore falls. Higher iron ore prices also tend to increase the likelihood of a positive trade balance for Australia, which is also positive for the Australian dollar.
The balance of trade, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can affect the value of the Australian dollar. If Australia produces highly sought-after exports, its currency will gain value from the excess demand generated by foreign buyers seeking to buy its exports in exchange for what it spends to buy imports. Therefore, a positive net trade balance strengthens the Australian dollar, with the opposite effect if the trade balance is negative.