Australian Dollar continues its decline as US Dollar remains strong amid risk-off mood
- Traders remain wary of potential US tariffs on Canada, Mexico, and the European Union, fueling global uncertainty.
- PCE and GDP data from the US came in strong.
- Reserve Bank of Australia Deputy Governor Andrew Hauser emphasized the need for stronger inflation evidence before further policy moves.
- China’s PBC Deputy Governor Lu Lei proposed special treasury bonds to bolster major state-owned banks, underscoring potential effects on Australia’s resource exports.
The Australian Dollar (AUD) loses ground against the US Dollar (USD) for the fifth consecutive day on Thursday. A prevailing risk-off mood, combined with renewed United States (US) tariff threats, underpins the Greenback’s strength alongside strong inflation and GDP data. Meanwhile, the Reserve Bank of Australia (RBA) maintains a cautious stance as it grapples with lingering inflation challenges.
Daily digest market movers: AUD pressured by tariff concerns and subdued capital spending
- The Aussie extends its losing streak, further weighed by softer-than-expected Private Capital Expenditure data, which declined 0.2% in Q4 2024 instead of the forecasted 0.8% gain.
- RBA Deputy Governor Andrew Hauser reiterated optimism for eventual inflation improvements but insisted on seeing tangible progress before altering the bank’s trajectory.
- On the Chinese front, the People’s Bank of China Deputy Governor Lu Lei signaled support for new treasury bonds to boost key banks’ equity levels. This development may impact Australian commodity exports if Chinese growth slows.
- US trade authorities published contradictory statements on scheduled tariffs against multiple trading partners, including Canada and Mexico, leading to persistent uncertainty in financial markets.
- Recent US data showed second-estimate GDP growth at 2.3% annualized in Q4, while the core Personal Consumption Expenditures measure climbed to 2.7%, reinforcing the Federal Reserve’s hawkish lean on inflation.
AUD/USD technical outlook: Five-day losing streak confirms break below 20-day SMA
AUD/USD has lost ground for a fifth consecutive session, declining around the mid-0.6200 zone after failing to hold above its 20-day Simple Moving Average. The Relative Strength Index (RSI) hovers in a lower range, declining sharply and signaling weakening bullish efforts. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram prints decreasing green bars, suggesting that upside momentum is fading. The pair’s failure to maintain traction above the 20-day SMA does not necessarily imply a full-blown bearish trend shift. However, further downside cannot be ruled out if tariff news or domestic data significantly dent risk 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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