AUD/USD bounces sharply from recent pullback
- The Australian Dollar rallied as hot Chinese inflation data lifted sentiment ahead of Tuesday's China trade figures.
- China's February CPI surged to 1.3% YoY, well above the 0.8% consensus, driven by extended Lunar New Year spending; core CPI hit 1.8%, the strongest pace since March 2019.
- US February CPI due Wednesday at 0.3% MoM and 2.4% YoY; Thursday brings Australian consumer inflation expectations for March.
AUD/USD jumped about 0.8% on Monday, closing just shy of 0.7100 in a session that erased a large portion of last week's pullback. The pair traded as low as 0.6960 before buyers stepped in aggressively, producing a bullish candle with a long lower wick that signaled firm demand below the 0.7000 level. Price has been oscillating in a broad range between 0.7000 and the year-to-date high near 0.7150 since mid-February, and Monday's bounce keeps the pair firmly in the upper half of that range.
China's February Consumer Price Index (CPI) beat expectations on Monday, rising 1.3% YoY against a consensus of 0.8%. The surge was largely seasonal, tied to an extended nine-day Lunar New Year holiday that boosted spending on travel, dining, and services. Producer prices fell 0.9% YoY, better than the expected 1.1% decline, with rising metals and energy costs helping to narrow factory-gate deflation. Chinese trade data on Tuesday is the next regional catalyst, with February exports expected at 7.1% YoY growth and imports forecast at 6.3%.
In Australia, Energy Minister Chris Bowen disclosed that the country holds just 36 days of petrol reserves, well below the 90-day threshold recommended by the International Energy Agency (IEA), keeping the Strait of Hormuz supply shock front of mind for domestic policy. The Reserve Bank of Australia (RBA) meets on March 17, with markets pricing roughly 30% odds of another hike; a move to 4.10% in May is priced in further. Wednesday's US February CPI is the week's marquee data risk for the pair.
AUD/USD daily chart
Technical Analysis
In the daily chart, AUD/USD trades at 0.7077. The pair holds a firm bullish bias as price action remains well above the rising 50-day and 200-day exponential moving averages, underscoring an established uptrend despite recent consolidation under 0.7100. The latest pullback from the recent high has not damaged the broader structure, with the stochastic oscillator easing from overbought territory toward mid-range, indicating fading upside momentum rather than a clear reversal. This combination points to a market that is pausing within an ongoing advance, with dips more likely to attract buying interest while the broader trend structure remains intact.
Initial support aligns near 0.7040, where recent lows converge with short-term congestion, followed by a deeper cushion toward 0.7000 if sellers extend the correction. A break below that area would expose the next bearish objective closer to 0.6950, where buyers previously re-emerged. On the upside, immediate resistance appears at 0.7100, guarding the recent peak around 0.7120, and a clear break above this band would signal renewed trend continuation toward higher highs. As long as spot holds above 0.7040, the near-term technical framework continues to favor an eventual retest and potential breach of the 0.7100–0.7120 ceiling.
(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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