- AUD/USD remains neutral around 0.6490 on Thursday.
- Concerns about the US-China trade war and upcoming sanctions on AI chips weigh on AUD/USD.
- Dollar weakness continues to support the Australian Dollar.
AUD/USD remains mixed around 0.6495 in Thursday’s session, reversing early gains. The recent weakness of the US Dollar (USD) has helped keep the Australian Dollar afloat. However, buyers have become cautious amid the trade war between the United States (US) and China. The US is set to unveil more sanctions on Artificial Intelligence (AI) chips against China on Monday, which is weighing on the AUD/USD, due to the risk aversion sentiment that has been triggered.
The Australian Dollar (AUD) has gained support due to US Dollar weakness, despite mixed economic data from Australia and a hawkish Reserve Bank of Australia (RBA).
What’s moving the market today: The Australian dollar pressured as US-China trade concerns persist.
- AUD/USD has benefited lately from the weakness of the USD, which appears to be in a period of consolidation.
- US Dollar fundamentals remain, with markets pricing in a less dovish Federal Reserve (Fed) and strong economic data limiting USD losses.
- On the other hand, the Australian Dollar could see some gains from the RBA’s hawkish stance, but Australia’s mixed economic outlook could limit the upside.
- Markets see the RBA’s first rate cut in the second quarter of 2025, while remaining confident of a Fed cut in December.
- Furthermore, fears of a trade war between the US and China could also affect the Australian Dollar, as China is one of its main trading partners.
AUD/USD Technical Outlook: Outlook is negative in the near term despite signs of a slight recovery
The AUD/USD pair remains under pressure as technical indicators continue to point to a bearish bias, with the Relative Strength Index (RSI) below the 50 mark, but the Moving Average Convergence/Divergence (MACD) indicator shows some signs of bullish presence. However, in the short term, the outlook remains negative unless the pair manages to recover above the 20-day SMA. If this level is broken, it could signal a possible trend reversal and open the door for more gains in AUD/USD.
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.
