Australian Dollar climbs as markets assess Trump’s remarks post-PPI
- Aussie nears 0.6300 amid softer US Dollar.
- Risk sentiment fluctuates as potential reciprocal tariffs loom between China and the US.
- The USD failed to capitalize on strong PPI data.
The Australian Dollar (AUD) gains ground against the US Dollar (USD) on Thursday. Despite these gains, the risk-sensitive AUD faces headwinds from fears of a potential global trade war, as United States (US) President Donald Trump announced he will impose reciprocal tariffs on every country that charges duties on US imports.
Daily digest market movers: Aussie holds firm after upbeat US PPI and tempered tariff concerns
- The tariffs may begin to be imposed within weeks as Trump’s trade and economic team study bilateral tariff and trade relationships.
- The US Dollar Index (DXY) remains under pressure as traders balance headwinds and tailwinds, including a prospective Ukraine-Russia peace deal, the United States Producer Price Index (PPI) data, and reciprocal tariffs to be imposed.
- A knee-jerk US Dollar rally ensued after stronger-than-expected PPI figures, but the currency reversed course once President Trump and President Vladimir Putin agreed to start peace talks with Ukraine.
- Recent labor figures support moderate optimism: United States Jobless Claims for the week ending February 7 came in at 213,000, below consensus, and Continuing Claims fell to 1.850 million from 1.886 million.
- The monthly headline PPI for January ticked up to 0.4%, surpassing the 0.3% estimate but lower than December’s revised 0.5%. Core PPI came in at 0.3% as expected.
- On the trade front, Trump reiterated his threat of a 100% tariff on BRICS countries and raised issues about unchanged tariffs for many nations. He also criticized the European Union’s trade relationship with the United States, fueling geopolitical uncertainties.
AUD/USD technical outlook: Momentum builds as pair stays above 20-day Simple Moving Average
The Relative Strength Index (RSI) stands at 57, in positive territory and rising sharply, indicating growing buyer conviction. Meanwhile, the Moving Average Convergence Divergence (MACD) indicator prints flat green bars, reflecting a modest but stable uptrend.
By holding firmly above its 20-day Simple Moving Average, the Aussie displays potential for further gains, though lingering tariff threats and shifting risk sentiment could quickly alter the current outlook.
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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