Australian Dollar weakens as risk sentiment cools and US Dollar steadies
- Australian Dollar retreats as the US Dollar stabilizes, with investors reassessing risk appetite.
- Australia’s GDP data exceeded expectations, but trade policy concerns overshadowed gains, pressuring AUD.
- The Australian Dollar faces renewed selling interest amid trade tensions and uncertainty over US economic policy.
- Technical indicators suggest bearish pressure is building, with AUD/USD slipping toward key support levels.
The Australian Dollar (AUD) is retreating on Thursday against the US Dollar (USD) after three consecutive days of gains. The AUD/USD pair faces selling pressure as risk sentiment weakens and the US Dollar stabilizes. Despite stronger-than-expected GDP data from Australia, concerns over trade policy shifts and global economic uncertainty weighed on the Aussie, leading to a pullback in the pair.
Daily digest market movers: Australian Dollar pressured as USD stabilizes
- The Australian Dollar erased part of its daily gains, despite robust fourth-quarter GDP data showing 0.6% quarterly growth and a 1.3% yearly expansion. Strong public and private sector spending supported the economy, but broader risk-off sentiment limited the AUD upside.
- The Reserve Bank of Australia (RBA) continues to expect economic growth to moderate toward 2% by 2025. While its cautious stance has previously supported AUD strength, investors remain wary of potential policy adjustments in response to inflation and labor market trends.
- Escalating trade tensions weighed on the Australian Dollar, with new US tariffs affecting key trading partners. Tariffs on Canadian, Mexican, and Chinese goods raised concerns over weakening global demand. Given China’s role as Australia’s top trading partner, signs of reduced Chinese economic activity could further pressure the Aussie.
- Friday’s US Nonfarm Payroll report remains a crucial market driver, as labor data will influence expectations regarding the Federal Reserve’s next policy move.
AUD/USD Technical Analysis: Bears take control near key support
The Australian Dollar lost momentum on Thursday, slipping toward the 0.6330 region as selling pressure increased. The AUD/USD pair struggles to sustain gains above its 20-day Simple Moving Average (SMA), signaling a shift in momentum toward the downside.
The Moving Average Convergence Divergence (MACD) indicator continues to print decreasing red histogram bars, suggesting a steady bearish pressure. Meanwhile, the Relative Strength Index (RSI) remains in positive territory at 58 but is beginning to flatten, suggesting fading upside momentum.
Key support emerges around the 0.6300 level, where buyers may attempt to stabilize the pair. Below this, further declines could push AUD/USD toward the 0.6270 region. On the upside, immediate resistance now stands near 0.6360, with a break above this level required for any meaningful recovery.
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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