- AUD/USD falls 0.82% to 0.6395 on Tuesday.
- The RBA’s less aggressive interest rate guidance weighs heavily on the Australian Dollar.
- RBA Governor Michele Bullock remains mildly confident that inflation will return to the bank’s 2% target.
The AUD/USD pair fell sharply below 0.6400 on Tuesday, declining 0.82% to 0.6395 after the Reserve Bank of Australia (RBA) delivered less aggressive guidance on interest rates. RBA Governor Michele Bullock expressed confidence that inflation risks had reduced but not disappeared. She noted that a decision to cut interest rates at the next meeting in February would depend on data, but she was confident that wages and demand were declining.
Investors now await US inflation data and Australian employment data, both of which could influence the direction of the Australian Dollar in the coming days. Meanwhile, the market remains under selling pressure as expectations of a less dovish RBA grow. Analysts at ANZ and Westpac predict the RBA could begin cutting interest rates in May 2025.
Daily Market Summary: Australian Dollar Falls as Markets Assess RBA’s Less Aggressive Tone
- The Australian Dollar remains under strong selling pressure as markets bet on a less dovish stance from the RBA.
- Michele Bullock, Governor of the RBA, expressed slight confidence that inflation will return to the bank’s target of 2%.
- Asked whether the RBA will cut interest rates in February, Bullock said the decision would depend on data, with a focus on slowing wages and demand.
- Ahead of the RBA policy decision, analysts at ANZ and Westpac predicted the RBA could begin cutting interest rates from May 2025.
- This week, investors should prepare for more volatility in the Australian Dollar as November domestic employment data is due to be released on Thursday.
- Meanwhile, the US dollar rises ahead of US Consumer Price Index data for November, due out on Wednesday.
- These data will likely influence market speculation about the Federal Reserve’s interest rate decisions for the December 18 policy meeting.
- For now, according to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points to 4.25%-4.50% is currently around 80%.
AUD/USD Technical Outlook: Bulls take a hit, bears take the lead
The Relative Strength Index (RSI) stands at 36 for the Australian pair, still in the negative area and declining sharply, signaling continued selling pressure. The MACD histogram also features decreasing green bars, suggesting that the bearish momentum will likely persist.
Immediate support lies at the recent low of 0.6350, while resistance lies near 0.6440. The market will remain volatile, and upcoming data releases such as the RBA policy decision and US CPI could provide significant direction for the pair in the coming days.
The Australian Dollar FAQs
One of the most important factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). As Australia is a resource-rich country, another key factor is the price of its largest export, iron ore. The health of the Chinese economy, its largest trading partner, is a factor, as is inflation in Australia, its growth rate and the Balance of Trade. Market sentiment, that is, whether investors bet on riskier assets (risk-on) or seek safe havens (risk-off), is also a factor, with the risk-on being positive for the 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 RBA’s main objective 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 ones. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former being negative for the AUD and the latter being positive for the AUD.
China is Australia’s largest trading partner, so the health of the Chinese economy greatly influences the value of the Australian Dollar (AUD). When the Chinese economy is doing well, it buys more raw materials, goods and services from Australia, which increases demand for the AUD and drives up its value. The opposite occurs when the Chinese economy does not grow as fast as expected. Therefore, positive or negative surprises in Chinese growth data usually have a direct impact on the Australian Dollar.
Iron ore is Australia’s largest export, with $118 billion a year according to 2021 data, with China being its main destination. The iron ore price, therefore, may be a driver of the Australian dollar. Typically, if the price of iron ore rises, the AUD also rises as aggregate demand for the currency increases. The opposite occurs when the price of iron ore falls. Higher iron ore prices also tend to result in a higher likelihood of a positive trade balance for Australia, which is also positive for the AUD.
The trade balance, which is the difference between what a country earns from its exports and 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, its currency will gain value solely from the excess demand created by foreign buyers wanting to purchase its exports versus what it spends on purchasing imports. Therefore, a positive net trade balance strengthens the AUD, with the opposite effect if the trade balance is negative.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
