- AUD/USD continues to maintain a firm grip on 0.6200.
- Market sentiment tilted in favor of safe havens at the start of 2025.
- Australian Dollar traders await further clues from the RBA on policy direction before taking a position.
AUD/USD tried and failed to initiate a bull run during the first trading session of 2025, rallying on low volumes before collapsing back into the 0.6200 zone late in the day. A broad push towards the safe-haven US Dollar kept the Aussie pair on the defensive, and the AUD is stuck in congestion on the weak side of two-year lows.
The economic data calendar is largely empty on the antipodean side for the rest of the week, leaving investors to contend with U.S. Purchasing Managers’ Index (PMI) numbers due out on Friday and an uncertain outlook. on the interest rate differential of the Australian Dollar.
The Federal Reserve (Fed) is set to make fewer interest rate cuts throughout 2025 than previously expected, keeping the US dollar well-supplied across the board alongside a general malaise that has hit currency participants. market in recent months. Market flows remain limited by the New Year holiday that closed markets during the midweek session, but a shaky stance on fresh volumes at the start of the new trading season bodes poorly for the dollar’s near-term gains. Australian.
Friday’s US ISM Manufacturing PMI survey results are expected to remain flat at a contractionary 48.2.
AUD/USD Price Forecast
AUD/USD bulls will look for a fresh break higher in the coming days as bids appear to be curbing further declines. However, a new round of short selling is not completely out of the question, especially if the bottom falls out of the short-term price action and sends bids below last week’s bottom set near 0.6180.
AUD/USD Daily Chart
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.
