AUD/USD consolidates below three-year highs ahead of key CPI
- Australian Dollar steadies near 0.7060 as markets await Wednesday's inflation print.
- The RBA hiked rates 25 basis points to 3.85% at its February meeting, with markets pricing roughly 76% odds of another move by May as inflation holds above the 2%-3% target band.
- January's Australian CPI data, due Wednesday, is forecast at 3.7%; new 15% global tariffs from President Trump add to cross-market uncertainty.
AUD/USD edged higher by less than 0.1% on Tuesday, trading in a narrow range around 0.7060. Price has been consolidating in a roughly 150-pip band between 0.7000 and the year-to-date high just shy of 0.7150 for nearly four weeks, with a cluster of small-bodied candles and doji pointing to indecision (or market apprehension) ahead of Wednesday's CPI.
The Reserve Bank of Australia's (RBA) February rate hike to 3.85%, its first increase since November 2023, underscored the Board's concern over renewed capacity pressures and stronger-than-expected private demand growth. Wednesday's Australian January Consumer Price Index (CPI) release is the next test of the hawkish outlook, with headline inflation forecast to ease only marginally to 3.7% from 3.8% and trimmed mean CPI expected to hold steady at 3.3%.
On the US Dollar (USD) side, the Supreme Court's ruling last Friday against Trump's earlier tariff measures prompted a fresh 15% global tariff announcement, weighing on risk sentiment. US consumer confidence ticked up to 91.2 in February from 89, though the expectations component has now spent 13 consecutive months below the 80 recession-warning threshold.
Sideways consolidation below 0.7150 as Stochastic drifts in neutral territory
The pair is holding well above the rising 50-day Exponential Moving Average (EMA) close to 0.6890 and the 200-day EMA near 0.6660, confirming the broader bullish structure that has been in place since the rally from the January low around 0.6590. The Stochastic Oscillator has pulled back from the overbought zone and is drifting sideways in neutral territory, suggesting momentum is cooling without turning bearish. A sustained break above the 0.7150 area would open a path toward the 0.7200 round number, while a loss of 0.7000 would shift focus toward the 50-day EMA.
AUD/USD Daily chart
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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