Australian Dollar sees mild gains as markets assess US Q4 GDP and Fed outlook
- Pair sees some upside around 0.6235, maintaining a tight range after key US data.
- Fed holds rates but adopts a more cautious stance on inflation progress.
- US GDP and jobless claims offer mixed signals, pressuring the US Dollar.
- RBA is expected to pivot toward policy easing next month as inflation cools.
AUD/USD remains range-bound above 0.6200 on Thursday as markets assess the United States (US) fourth-quarter GDP release, which could shape the Federal Reserve's (Fed) rate outlook. Despite holding rates at 4.25%-4.50%, the Fed’s latest statement signaled a more cautious approach toward inflation, fueling doubts over the timeline for rate cuts. On the other hand, markets are confident that the Reserve Bank of Australia (RBA) will deliver a rate cut in February.
Daily digest market movers: Aussie mildly soft after US data
- US GDP disappointed as the preliminary Q4 GDP figure slowed to 2.3%, missing expectations of 2.6% and sharply below the 3.1% growth seen in Q3.
- Inflation signals were mixed: Personal Consumption Expenditure (PCE) prices surged to 2.3% (from 1.5%), suggesting persistent inflationary pressures, while core PCE rose by 2.5%, matching estimates.
- Initial jobless claims fell to 207K, beating the forecasted 220K, while continuing claims eased to 1.858 million (from 1.900 million).
- On the Fed’s side, policymakers removed language indicating progress toward the 2% inflation target, signaling a more data-dependent approach. However, Fed Chair Jerome Powell downplayed this shift, stating it was not meant to indicate a significant policy change.
- Market bets on RBA easing rise as Q4 CPI data from Australia supports a rate-cut case, with headline inflation easing to 2.5% y/y (from 2.8%) and the trimmed-mean CPI slipping to a three-year low of 3.2%, below the RBA's forecast of 3.4%. Traders are now fully pricing in a 25bps cut in February.
AUD/USD technical outlook: Consolidation phase continues
The AUD/USD remains within a narrow 0.6230-0.6300 trading band, reflecting market hesitation ahead of key data releases. The MACD histogram shows green bars, hinting at underlying bullish momentum, while the RSI sits at 45 in negative territory, reflecting mild selling pressure.
Despite recent declines, the short-term outlook remains neutral-to-positive, with traders looking for a breakout above 0.6300 to validate further gains or a drop below 0.6200 to confirm renewed bearish sentiment.
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.
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