AUD/USD declines near 0.6330 despite subdued US Dollar pressure
- The Aussie continues a three-day losing streak, awaiting monthly CPI data.
- Tariff anxieties persist as President Trump threatens new duties on Canadian and Mexican goods.
- RBA’s cautious approach to policy cuts leads traders to question near-term easing prospects.
- Investors brace for US PCE data, which is crucial for Federal Reserve rate guidance.
AUD/USD slides to near 0.6330 before the Australian monthly Consumer Price Index (CPI) figures for January are released. The Reserve Bank of Australia (RBA) cut its Official Cash Rate (OCR) by 25 basis points to 4.10% last week, but persistent inflation concerns loom. Meanwhile, renewed fears of additional United States (US) tariffs by President Donald Trump underpin the US Dollar (USD), limiting the Aussie’s upside.
Daily digest market movers: Aussie under scrutiny amid rate caution and tariff jitters
- The Australian Dollar (AUD) weakens for the third consecutive day, weighed by tariff anxieties and approaching inflation data that may influence RBA policy actions.
- The Australian Bureau of Statistics is expected to show inflation rose from 2.5% in December to 2.6% in January, potentially reducing the likelihood of further immediate interest-rate cuts.
- The RBA signaled a measured approach after trimming the cash rate to 4.10%, warning that high inflation remains a threat and that the bank’s fight against rising prices is far from over.
- The US Dollar (USD) remains steady after Monday’s gains, with President Trump warning that 25% tariffs on Canadian and Mexican imports could still proceed despite earlier signs of delay.
- Markets also focus on upcoming US Personal Consumption Expenditure (PCE) data on Friday, which will clarify the Federal Reserve’s (Fed) rate strategy.
- US Treasury Secretary Scott Bessent reaffirmed tariffs as a revenue measure for the Trump administration, whereas Trade Advisor Peter Navarro hinted at selective exemptions, revealing internal policy inconsistencies.
AUD/USD technical outlook: Bulls lose momentum near 100-day SMA, pair stays above 20-day SMA
The AUD/USD pair declines moderately on Tuesday, while the 100-day Simple Moving Average continues to limit any upside push. Although the Relative Strength Index (RSI) remains in an elevated zone, it appears to be flattening out, implying that the bullish impetus may be diminishing. Simultaneously, the Moving Average Convergence Divergence (MACD) histogram features flat green bars, suggesting reduced upward momentum. Although the Aussie remains above its 20-day Simple Moving Average, the inability to maintain gains past the 100-day SMA does not indicate a structural change; the pair could either trade lower or consolidate between these two moving averages, contingent on near-term data and shifts in trade 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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