AUD/USD remains resilient amid Fed uncertainty and trade concerns
- The US Dollar Index retreats amid market jitters ahead of the Federal Reserve’s rate decision.
- US President Trump hints at possible changes to USMCA but no concrete trade deals yet, keeping markets cautious.
- The Australian Dollar gains against major currencies, including a 0.40% increase against the Greenback.
The AUD/USD pair remains resilient, despite a retreat from recent highs. The Australian Dollar (AUD) benefits from a weaker US Dollar (USD), as market participants focus on the Federal Reserve’s (Fed) anticipated policy meeting on Wednesday. Meanwhile, the trade rhetoric surrounding the Trump administration keeps traders on edge, especially with President Donald Trump discussing possible changes to the United States-Mexico-Canada Agreement (USMCA). However, no definitive updates have been provided regarding trade deals, leaving uncertainty in global markets. The Australian Dollar is also supported by its moderate recovery against the backdrop of China’s steady economic activity.
Daily digest market movers: US Dollar on the defensive ahead of Fed meeting
- Asian currencies see strong gains as markets assess the potential spillover effect of Taiwan Dollar strength.
- The US Dollar Index (DXY) is under pressure, falling to 99.30 as investors await the Federal Open Market Committee’s (FOMC) rate decision.
- The anticipated meeting could provide clues about potential rate cuts later in the year.
- Meanwhile, global currency markets are reacting to trade uncertainties, particularly in Asia, where the Taiwan Dollar's surge is affecting broader regional currencies. Investors are also eyeing any announcements related to the Trump administration's trade negotiations, though no details have emerged regarding finalized agreements.
Technical Analysis: AUD/USD remains bullish with supportive indicators
The AUD/USD pair is flashing a bullish signal, trading at 0.6500, up 0.40% on the day, and sitting near the top of its daily range of 0.6438 to 0.6498. The Relative Strength Index (RSI) stands at 63.48, signaling neutral momentum. The Moving Average Convergence Divergence (MACD) indicates a buy signal, and the Commodity Channel Index (CCI) reads 124.18, also suggesting a bullish bias. The Average Directional Index (ADX) at 21.07 is neutral, indicating a balanced market. Key moving averages reinforce the bullish outlook: the 20-day SMA (0.6372), the 100-day SMA (0.6286), and the 200-day SMA (0.6462) all suggest buying pressure. Additionally, the 10-day EMA (0.6422) and SMA (0.6418) further confirm the bullish sentiment. Support levels are identified at 0.6469, 0.6462, and 0.6422, providing a solid foundation for further gains.
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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