Australian Dollar climbs as USD slides following Trump inauguration speech
- Aussie pair surges 1% to 0.6255 on Monday.
- Trump administration unveils a measured approach to tariffs.
- Softer USD underpins global equities, bolstering risk appetite.
The marked sell-off in the US Dollar on Monday paved the way for the AUD/USD to gain notable momentum, allowing it to reach multi-day peaks just below the 0.6300 threshold at the start of the week. The movement was part and parcel of markets digesting Donald Trump’s inauguration speech signals. This sharp rally came despite lingering questions over the Reserve Bank of Australia’s (RBA) policy path and mixed domestic fundamentals, highlighting the influence of a broadly weaker Greenback on high-beta currencies like the Aussie.
Daily digest market movers: Aussie recovers mainly due to a softer USD
- The Aussie is gaining traction as the US Dollar loses traders’ interest at the start of the week. The US Dollar Index revisited levels beneath 108.00 on Monday, reflecting a pronounced bout of risk-on sentiment.
- Following his inauguration, President Donald Trump directed federal agencies to examine persistent trade imbalances and consider corrective actions — particularly toward nations like China, Canada and Mexico, although a taskforce will first evaluate potential tariffs.
- Global stocks hold firm, buoyed by hopes that the new administration’s initially measured stance on trade may avert major upheavals.
- Market speculation concerning a Fed rate cut by mid-year grows with the CME FedWatch Tool assigning a 55% chance to a hold in May before a possible move by June.
- On the local front, the Aussie may suffer from a mixed economic outlook, or if the RBA eventually gives hints that it will start cutting rates in Q1 of 2025.
AUD/USD technical outlook: Bulls eye higher ground amid choppy swings
The AUD/USD pair jumped by 1% to 0.6255 on Monday, extending its recovery from previous setbacks. The Moving Average Convergence Divergence (MACD) histogram continues printing green bars, hinting at building bullish momentum.
Meanwhile, the Relative Strength Index (RSI) stands in the upper 50s near 59, having climbed sharply and reinforcing a positive tone. If the pair can consolidate above the mid-0.6200s, it could set its sights on the psychological 0.6300 barrier, although persistent policy and growth concerns may still temper any further upside.
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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