- The AUD added 0.25% against the USD, approaching the 0.6300 barrier on Thursday.
- Rising US yields lend only modest support to the Dollar.
- Traders see a 60% chance of an RBA rate cut next month.
AUD/USD added to Wednesday’s slight rise and moved towards the 0.6300 region, finding support in a subdued US Dollar and a rally in riskier assets. Even as the dollar attempted to stabilize around the 108.00 zone, market participants continued to analyze the details of President Donald Trump’s latest remarks at the World Economic Forum in Davos, where he criticized trade deficits, promised more tax cuts and noted possible changes in energy and defense policies.
Daily Market Summary: Australian Dollar Rebounds as Markets Assess Trump’s New Signals
- The Australian Dollar oscillated at the upper end of the weekly range, although it stalled again near the 0.6300 threshold.
- The US Dollar Index (DXY) briefly advanced on Thursday, adding to the previous session’s gains around 108.00, finding strength in rising US yields.
- After weeks of a solid USD rally, fueled by the so-called “Trump trade”, the Australian Dollar finally recovered some losses, helped by dollar consolidation.
- On Thursday, US President Donald Trump lashed out at trade imbalances, specifically pointing to Canada’s 4% share of the total US deficit, reiterated calls for deeper tax cuts and pressed again to OPEC to reduce crude oil prices. He also promised to sharply reduce U.S. spending deficits and indicated his desire to influence Federal Reserve policy.
- As for the Reserve Bank of Australia, market participants still rate the probability of a rate cut in February at 60%, reflecting the country’s weak economic momentum.
- Commodity markets send mixed signals; copper recovers slightly, while iron ore remains at elevated levels but trades sideways.
AUD/USD Technical Outlook: Bulls hold 20-day moving average
AUD/USD rose 0.25% to 0.6290 on Thursday, launching another attack on the 0.6300 resistance. The Relative Strength Index (RSI) has jumped to 55, firmly in positive territory, while the MACD histogram shows rising green bars, signaling sustained bullish intent.
Notably, buyers are building support around the 20-day SMA. If the pair can consolidate beyond 0.6300, there could be a further recovery ahead, although lingering concerns over China’s economic pace and potential Australian central bank easing could temper any lasting upside.
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.
