AUD/USD rallies on strong GDP but holds below three-year highs
- The Australian Dollar bounced 0.5% after Q4 GDP beat expectations, but gains remain capped.
- Australia's Q4 GDP grew 0.8% quarter-on-quarter, beating the 0.6% consensus, with annual growth accelerating to 2.6% from 2.1%.
- US ADP payrolls and ISM Services PMI both topped forecasts on Wednesday; NFP and retail sales due Friday round out a busy US data week.
AUD/USD jumped one-half of one percent on Wednesday, rallying back to around 0.7080 after dipping toward the 0.7000 level earlier in the week. The pair has been consolidating in a roughly 150-pip range between 0.7000 and the year-to-date high near 0.7150 for over a month, and the Australian Dollar (AUD) remains down about 0.65% across the past five market sessions against the US Dollar (USD) despite Wednesday's bounce.
Australia's fourth-quarter Gross Domestic Product (GDP) print of 0.8% beat expectations of 0.6%, with annual growth hitting a three-year high of 2.6%, driven largely by government spending and a rebound in inventories. The Reserve Bank of Australia (RBA) raised rates to 3.85% in February, and the stronger growth data is likely to keep the Board's tightening bias in place.
On the US Dollar side, the escalation of conflict in the Middle East following US and Israeli strikes on Iran and the effective closure of the Strait of Hormuz have driven safe-haven flows into the Greenback, though safety flight momentum has eased heading through the midweek market sessions. With no major Australian data left on this week's calendar, focus shifts to US releases, with Nonfarm Payrolls (NFP), the Unemployment Rate, and January Retail Sales all due Friday.
AUD/USD daily chart
Technical Analysis
In the daily chart, AUD/USD trades at 0.7079. The near-term bias is mildly bullish as price holds well above the rising 50-day and 200-day exponential moving averages, reinforcing an established uptrend despite the recent loss of momentum. The latest Stochastic reading retreats from overbought territory but remains in the upper band, indicating cooling upside pressure rather than a clear reversal, which aligns with a consolidation phase within a broader upward structure.
Initial support emerges near 0.7040, where recent lows align with the short-term consolidation floor, followed by a deeper cushion around 0.7000 that guards the 50-day EMA zone near 0.6930. On the topside, immediate resistance is seen around 0.7120, just below the recent swing high, with a break above exposing the 0.7160 area as the next upside objective.
(The technical analysis of this story was written with the help of an AI tool.)
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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