- The AUD/USD gains land around 0.6500 in the first Asian session on Monday.
- The current tendency to “sell America” weighs on the US dollar in general.
- Moderate RBA rate cuts could limit the rise in the pair.
The Aud/USD torque extends the rally to around 0.6500 during the first Asian session on Monday. The persistent fears of commercial war and the current tendency to “sell America” drag the US dollar (USD) down and provide some support to the pair. American markets are closed due to the Fallen Day holiday on Monday.
Fed officials have said in the last weeks that they will maintain unchanged fees due to persistent uncertainty about the tariff policies of US President Donald Trump. The president of the Federal Reserve of Chicago, Austan Goolsbee, said Friday that Trump’s latest tariff threats have complicated politics and have probably postponed changes in interest rates. Meanwhile, Kansas City Fed President Jeffrey Schmid said that officials will be based on hard data to make decisions about interest rates and that the Fed needs to be careful with the amount of emphasis it puts in soft data.
According to the CME Fedwatch tool, the markets have valued at almost 71% the possibility that the Fed maintain its stable interest rates in its next two meetings. Analysts expect the US Central Bank to cut twice this year, being the next movement in September.
The renewed commercial tensions and the growing concerns about the fiscal perspective of the United States continue to undermine the dollar against the Australian dollar. The USD has struggled to gain ground since Moody’s reduced the US credit rating of AAA to AA1. This movement is aligned with similar sales by Fitch Ratings in 2023 and Standard & Poor’s in 2011.
On the other hand, moderate rates cuts from the Australian Reserve Bank (RBA) could limit the rise in the Australian dollar (Aud). The RBA decided to reduce its cash rate from 4.15% to 3.85% last week, as expected. However, the Australian Central Bank expressed concern about the impact of tariffs on Australia’s economy. The RBA will closely monitor Trump’s tariff policy, especially with China, since China is an important commercial partner of Australia.
Faqs Australian dollar
One of the most important factors for the Australian dollar (Aud) is the level of interest rates set by the Australian Reserve Bank (RBA). Since Australia is a country rich in resources, another key factor is the price of its greatest export, iron mineral. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and commercial balance. The feeling of the market, that is, if investors are committed to more risky assets (Risk-on) or seek safe shelters (Risk-Off), it is also a factor, being the positive risk-on for the AUD.
The Australian Reserve Bank (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 the interest rates of the economy as a whole. The main objective of the RBA is to maintain a stable inflation rate of 2% -3% by adjusting the interest rates or the low. Relatively high interest rates compared to other large central banks support the AU, and the opposite for the relatively low. The RBA can also use relaxation and quantitative hardening to influence credit conditions, being the first refusal for the AU and the second positive for the AUD.
China is Australia’s largest commercial partner, so the health of the Chinese economy greatly influences the value of the Australian dollar (Aud). When the Chinese economy goes well, it buys more raw materials, goods and services in Australia, which increases the demand of the AU and makes its value upload. 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 mineral is the largest export in Australia, with 118,000 million dollars a year according to data from 2021, China being its main destination. The price of iron ore, therefore, can be a driver of the Australian dollar. Usually, if the price of iron ore rises, the Aud also does, since the aggregate demand of the currency increases. The opposite occurs when the price of low iron ore. The highest prices of the iron mineral also tend to lead to a greater probability of a positive commercial balance for Australia, which is also positive for the AUD.
The commercial balance, which is the difference between what a country earns with 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 requested exports, its currency will gain value exclusively for the excess demand created by foreign buyers who wish to acquire their exports to what you spend on buying imports. Therefore, a positive net trade balance strengthens the AUD, with the opposite effect if the commercial 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.
