AUD/USD holds above 0.7000 as RBA hawkishness meets USD strength
- The Australian Dollar remains supported by tight labor market and rate hike expectations, but hawkish FOMC minutes cap upside.
- The RBA's February rate hike to 3.85% and Thursday's firm January employment report keep market expectations alive for further tightening, with a May hike roughly 65% priced in.
- Wednesday's hawkish FOMC minutes reinforced the Fed's 3.50% to 3.75% hold, with members warning disinflation may be "slower and more uneven" than expected; US core PCE on Friday is the next key test.
The RBA's February rate hike to 3.85%, the first in over two years, continues to underpin the Australian Dollar after this week's minutes flagged elevated inflation risks and left the door open for further tightening. Thursday's January employment data reinforced that stance, with the unemployment rate holding at 4.1% (below the expected 4.2%) and the number of unemployed falling for a fourth consecutive month.
On the US Dollar side, the Federal Open Market Committee (FOMC) minutes released Wednesday struck a hawkish tone, with members describing disinflation as potentially "slower and more uneven" than expected and some participants flagging that upward rate adjustments could not be ruled out. Markets now price a 94% chance the Fed holds in March. Friday's US Q4 GDP and core PCE will be critical in shaping rate expectations into the second quarter.
Consolidation below 0.7147 as Stochastic eases from overbought
On the daily chart, AUD/USD traded in a narrow range near 0.7050 on Thursday. The pair is holding above the rising 50-day EMA at 0.6865 and well above the 200-day EMA at 0.6625, confirming the uptrend from the January lows near 0.6664 is continuing. Since printing a year-to-date high at 0.7147 in early February, price has consolidated in a roughly 0.7000 to 0.7100 band, with the 0.7000 psychological level acting as a floor.
The Stochastic Oscillator has crossed bearish from the overbought zone and is now easing toward neutral territory, suggesting the rally is pausing rather than reversing. Several small-bodied candles and doji near 0.7050 point to indecision ahead of Friday's US data. Resistance sits at the 0.7147 high; a break above would target 0.7200. Support rests at 0.7000, followed by 0.6900 and the 50-day EMA at 0.6865.
AUD/USD daily chart
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for 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 main goal of the RBA 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. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus 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, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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