- AUD/USD plunges as US dollar strengthens on upbeat data and economic sentiment.
- Australia’s central bank maintains a neutral stance, hinting at a possible rate cut in May 2025.
- Mixed sentiment indicators and upcoming economic data keep AUD/USD under scrutiny.
AUD/USD plunged in the session on Tuesday, falling 0.66% to 0.6535. The weakness of the Australian Dollar was due to a strengthening of the US Dollar. Despite maintaining a neutral stance, Australia’s central bank hinted at a possible rate cut in May 2025, and that delay could keep the Australian dollar afloat.
AUD/USD weakened due to the strength of the US Dollar, boosted by Republican election victories and positive data from the US. Australia’s employment report, due out later this week, is expected to influence the RBA’s policy decision in December and its next steps.
Daily Market Summary: Australian Dollar Falls on US Dollar Strength
- The strength of the US Dollar propelled the Dollar Index (DXY) to new four-month highs, negatively impacting risk-related currencies.
- AUD fell significantly, dipping below the 0.6600 mark and its 200-day SMA at 0.6629, indicating potential for further declines.
- The Reserve Bank of Australia (RBA) kept interest rates at 4.35%, with Governor Michele Bullock suggesting current levels are appropriate.
- Looking at the data, Australia’s Consumer Confidence and Business Confidence measures improved in November and October respectively.
- On Wednesday and Thursday, labor market data will be under scrutiny and could pace the pair in the short term.
AUD/USD Technical Outlook: Indicators Dangerously Close to Oversold Levels
Technical indicators reflect the dominance of the bears with the Relative Strength Index (RSI) falling below the oversold threshold of 30 and the MACD histogram printing lower red bars. These indicators are close to oversold levels, which could push the pair into a correction eventually.
The bears aim to break below 0.6500, targeting the July low of 0.6430, while the bulls need to reclaim 0.6600 to relieve immediate bearish pressure.
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.
