AUD/USD Price Forecast: Momentum turns higher, downside risks ease
- AUD/USD snaps five-day losing streak as US Dollar softens on Middle East de-escalation hopes.
- Technically, AUD/USD shows early signs of stabilization, with momentum indicators beginning to turn higher.
- Key resistance seen at 0.6900, with a break opening the door toward 0.7000.
AUD/USD trades on the front foot on Tuesday as the US Dollar (USD) softens on growing expectations that the Middle East conflict could end soon, lifting risk-sensitive currencies such as the Australian Dollar (AUD).
At the time of writing, AUD/USD is trading around 0.6885, pausing a five-day losing streak. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is trading near 99.90, easing after touching fresh ten-month highs of 100.64 earlier in the day.
Iran’s President Masoud Pezeshkian said Iran is ready to end the war but is seeking guarantees. This follows a Wall Street Journal report on Tuesday that Donald Trump told aides he is willing to end the US military campaign against Iran even if the Strait of Hormuz remains largely closed.
From a technical perspective, AUD/USD is attempting to rebound after slipping to two-month lows, with early signs of stabilization emerging. Momentum indicators suggest a tentative recovery, as the Relative Strength Index (RSI) hovers near 40 and starts to turn higher from recent bearish levels.
The Moving Average Convergence Divergence (MACD) indicator remains below both the signal line and the zero mark, indicating that bearish momentum is still in place, although downside pressure appears to be easing as the histogram begins to contract.
On the upside, the 0.6900 zone acts as immediate resistance, having previously served as a key support level. A break above this area could open the door toward the 0.7000 psychological level, which closely aligns with the 50-day Simple Moving Average (SMA) at 0.7021.
On the downside, immediate support is seen at the 100-day Simple Moving Average (SMA) around 0.6815. A daily close below this level could expose the next bearish target near the 0.6700 psychological mark, a previous breakout zone.
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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