Australian Dollar as risk-off mood meets FOMC countdown
- AUD/USD softens as risk aversion keeps Dollar demand firm.
- Fed hike pricing leaves Aussie vulnerable before Wednesday’s decision.
- Bullock speech could reshape RBA expectations after FOMC.
The Aussie Dollar loses 0.11% against the Greenback on Tuesday as risk appetite remains negative amid calls from AI company CEOs to slow development, while the FOMC monetary policy meeting looms. Expectations for a Fed rate hike undermine the AUD/USD, which trades at 0.7130.
AUD/USD slips as US-Iran conflict boosts the US Dollar
Major US equity indices finished the session in the red, while the US Dollar posted gains for the second straight day, according to the US Dollar Index (DXY). The DXY, which measures the performance of the Greenback against six currencies, is up 0.15% at 99.61.
Geopolitical developments pushed energy prices higher, as Saudi Arabia notified EU Oil refiner companies of shipment delays, following attacks from the Houthis that damaged the East-West crude pipeline.
US economic schedule light, ahead of FOMC
Data-wise, the US economic docket featured the ADP Employment Change 4-week average, which surpassed the previous week's revised figures. Later, the New York Fed Empire State Manufacturing Index dropped 13 pts to 7.6, due to a fall in new orders and shipments.
In the meantime, most G8 FX currency pairs pegged with the US Dollar are expected to trade subdued as investors await the Fed’s decision. Money markets had almost fully priced in a 25-basis-point rate hike, while investors eyed the update to the Summary of Economic Projections (SEP), the “dot-plot,” and Fed Chair Kevin Warsh's press conference.
In Australia, the docket remains empty, but most traders will be glued to the screen, digesting the Fed’s decision. After the FOMC, Aussie traders will digest a speech by the Reserve Bank of Australia (RBA) Governor Michelle Bullock on September 17.
AUD/USD Price Forecast: Technical Outlook
In the daily chart, AUD/USD trades at 0.7130. The pair holds above the cluster of simple moving averages (SMA) around 0.7074 and within a broader sequence of upward-sloping trend-line supports, which together suggest a still constructive underlying tone despite the recent pullback. Momentum has cooled, with the 14-day Relative Strength Index slipping toward the neutral 50 line, hinting that upside pressure is moderating rather than collapsing.
On the topside, initial resistance is seen at the horizontal barrier near 0.7198, where a clear break would reopen the way toward the recent highs along the broader descending trend structure. On the downside, immediate support is now implied by the 0.7130 area itself, with stronger technical demand expected around the SMA cluster near 0.7074, where it coincides with multiple rising trend-line supports that would need to give way to signal a deeper corrective phase.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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