- AUD/USD fell 0.20% to around 0.6200 on Friday.
- Upbeat Chinese GDP failed to offset dovish signals from the Reserve Bank of Australia.
- Trump’s impending tariff plans are fueling cautious market sentiment.
The AUD/USD pair returns to negative territory near 0.6200 on Friday, as it failed to maintain momentum sparked by stronger-than-expected Chinese economic indicators. Ongoing expectations of lower Australian interest rates and concerns about potential US import tariffs are weighing on the pair.
Daily summary of market drivers: The Australian dollar is still suffering from selling pressure, and should stabilize above 0.6200
- The US dollar is finding pockets of demand as investors move cautiously ahead of the inauguration of President-elect Trump.
- Markets expect the new administration to announce revised tariff initiatives, which could impact global trade and boost inflation in the United States.
- On the bright side for the Australian dollar, China’s GDP in the fourth quarter expanded 5.4% year-on-year, beating expectations of 5% and beating the previous 4.6%. However, the Australian dollar – a usual beneficiary of strong Chinese growth – is showing only modest support.
- The Reserve Bank of Australia’s inclination towards policy easing, combined with weak domestic sentiment, keeps the Australian dollar vulnerable to further declines despite a short-lived mid-week bounce.
AUD/USD Technical Outlook: Pair oscillates around 20-day SMA, sellers push
AUD/USD fell 0.22% to 0.6200 on Friday, pulling back from a previous high near the weekly peak. The Relative Strength Index (RSI) is hovering at 43, slipping deeper into negative territory.
Meanwhile, the Moving Average Convergence Divergence (MACD) histogram continues to display bullish green bars, indicating a measured upward effort. After briefly dipping below the 20-day simple moving average (SMA), the pair was able to rise above it again, suggesting that some near-term support remains in place. However, ongoing concerns over trade policies and the Reserve Bank of Australia’s dovish stance may keep upward attempts limited in the coming sessions.
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.
