Australian Dollar capped above 0.6300 despite hawkish RBA
- Aussie slips to 0.6345 amid a stronger US Dollar and negative market mood.
- RBA delivers a cautious 25bps rate cut to 4.10%.
- Tariff threats and trade tensions linger and limit the upside.
The AUD/USD pair halted its three-day recovery on the back of the firmer US Dollar (USD) and despite the Reserve Bank of Australia’s (RBA) hawkish cut although it managed to keep the trade above the 0.6300 barrier. Market participants remain vigilant about potential United States (US) tariff actions while digesting the RBA’s stance and waiting on further economic data.
Daily digest market movers: Aussie contends with trade and policy uncertainties and awaited RBA cut
- The RBA delivered a hawkish 25bps rate cut to 4.10%, in line with many forecasts, emphasizing that this move did not mark the start of an extended easing cycle.
- Uncertainty lingers over inflation trends and labor-market tightness which gave the statement a hawkish tone.
- Market watchers expect only one additional 25bps cut in Q3-2025, citing suboptimal productivity growth and enduring price pressures. However, if trimmed-mean Consumer Price Index (CPI) decelerates faster, the RBA may adopt a more accommodative stance.
- In addition, US President Donald Trump’s extended tariff threats on Chinese imports raise the possibility of countermeasures, threatening global sentiment and capping the pair’s upside.
- The US Dollar gained momentum after the Dollar Index (DXY) recaptured the 107.00 zone, fueled by recovering US yields, concerns over trade policies and a negative market mood due to the stalled negotiations between the US and Russia over Ukraine.
AUD/USD technical outlook: Pair remains above 20-day SMA as momentum stabilizes
The AUD/USD pair slipped 0.16% to 0.6345 on Tuesday, retreating from a multi-day upswing yet still trading near December highs. The Relative Strength Index (RSI) stands at 63, in positive territory but declining sharply, hinting that buying enthusiasm has eased slightly. Meanwhile, the Moving Average Convergence Divergence (MACD) indicator prints rising green bars, reflecting a gradual uptrend as the pair holds above its 20-day Simple Moving Average.
Despite modest losses, the Aussie retains a supportive tone, though a breach below 0.6300 could test bullish commitments. The next major upside target sits around the 100-day Simple Moving Average near 0.6670.
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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