Australian Dollar pared post-CPI losses as Chalmers budget answered the oil shock
- Treasurer Chalmers handed down the Federal Budget, responding to the oil shock with cost-of-living relief and tax cuts.
- US headline CPI hit 3.8% YoY in April, the hottest print since 2023, as the Iran oil shock kept energy costs elevated.
- Wednesday's WPI print and Trump's Thursday meeting with Xi in Beijing could shape sentiment for the rest of the week.
AUD/USD swung in a choppy intraday range on Tuesday before settling little changed for the session. The pair drifted to the day's peak during the Asian and European morning, then slid sharply mid-session to a low close to the 0.7210 area, before clawing back the bulk of those losses into the North American close. The resulting candle, with long wicks on both sides, pointed to indecision amid the day's volatility.
Treasurer Jim Chalmers delivered the 2026-27 Federal Budget on Tuesday, framed around responding to the global oil shock from the Iran conflict and easing cost-of-living pressures. The package included extended fuel excise relief, fresh tax cuts for low and middle-income earners taking effect from July, and savings measures targeting the National Disability Insurance Scheme. Earlier in the session, the National Australia Bank's April business survey showed conditions easing to 3 from 6, while confidence improved marginally to -24 but stayed deeply negative, pointing to a private sector struggling under high energy costs and weak demand. Australia's Wage Price Index (WPI) for Q1, due Wednesday, is expected to print at 0.8% QoQ and will be the key gauge of domestic inflation pressure.
On the US side, headline Consumer Price Index (CPI) accelerated to 3.8% YoY in April, the hottest reading since May 2023 and above the 3.7% consensus, with core CPI also overshooting at 2.8% YoY. Energy costs jumped 17.9% YoY, the steepest annual gain since 2022, reflecting the continued impact of the Strait of Hormuz disruption on global oil supply. US President Donald Trump rejected Iran's latest ceasefire counterproposal on Monday, calling it "garbage" and warning the truce is on "life support," while shipping through the strait remained at a standstill on Tuesday. Investors are now focused on Trump's Thursday meeting with Chinese President Xi Jinping in Beijing, an outcome that could either ease or further inflame the energy and risk backdrop weighing on AUD/USD.
AUD/USD 5-minute chart
Technical Analysis
In the five-minute chart, AUD/USD trades at 0.7240. The pair holds below the day’s open at 0.7252, keeping a mildly capped intraday tone despite a recent recovery from earlier lows. The latest Stochastic RSI reading has retreated toward oversold territory, hinting that downside momentum is losing intensity rather than accelerating.
On the topside, initial resistance is located at the day’s open around 0.7252, and a sustained break above this level would be needed to ease the current intraday cap and allow a more constructive recovery. On the downside, the absence of nearby structural levels keeps focus on short-term price action, with the softening Stochastic RSI suggesting that sellers may struggle to extend losses decisively unless fresh catalysts emerge.
In the daily chart, AUD/USD trades at 0.7240. The pair holds a constructive near-term bias as price trades firmly above the 50-day exponential moving average (EMA) at 0.7097 and the 200-day EMA at 0.6839, suggesting the broader uptrend remains supported. The latest Stochastic RSI reading around 66.6 stays in positive territory without yet signaling overbought conditions, hinting that bullish momentum is still intact but becoming more mature.
On the downside, immediate support is seen at the 0.7240 area, where the day’s open aligns as a nearby pivot, ahead of stronger dynamic support at the 50-day EMA around 0.7100. A deeper pullback would look to the 200-day EMA near 0.6840 as a major structural floor. With no clear overhead technical barriers from the provided data, buyers are likely to remain in control while price holds above the 0.7100 region.
(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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