AUD/USD jumps to near 0.6230 as US Dollar tumbles, upside remains capped
- The Aussie rebounded by roughly 0.67%, lifting the pair toward 0.6245 but still under last week’s negative outlook.
- Federal Reserve (Fed) dovish bets firm up after softer United States Personal Spending data.
- President Donald Trump reiterates he will double China tariffs to 20%.
- Tariff stalemate extends to Mexico and Canada, with no room left for negotiation according to Trump.
AUD/USD gains sharply to near 0.6230 as the US Dollar (USD) faces strong selling pressure. Fed dovish bets have escalated following a decline in United States (US) Personal Spending for January. However, the Australian Dollar (AUD) could again face selling pressure if President Donald Trump proceeds with additional tariffs on key trading partners, including China, Mexico, and Canada.
Daily digest market movers: Traders eye Trump’s new tariff pledges and RBA policy signals
- President Trump announced an intention to lift tariffs on Chinese imports to 20%, up from the currently planned 10%. He also said there is “no room left for a deal” on duties affecting Mexico and Canada, intensifying trade uncertainty across currency markets.
- Regarding the Fed policy, the probability of a Fed rate cut at June’s meeting has risen to 74%, according to the CME FedWatch tool, triggered by a downbeat US Personal Spending report. Markets interpret the data as a sign that the Fed may soften its policy stance sooner.
- On the local front, the Reserve Bank of Australia (RBA) cut its Official Cash Rate by 25 basis points to 4.10% in February and signaled a measured approach going forward. Investors await the RBA minutes due on Tuesday for hints of further easing measures as inflation remains a priority.
- While the US Dollar has weakened amid Fed cut speculation, President Trump’s decision to double China tariffs stirs caution. The Aussie, sensitive to Chinese demand, could rapidly drop if Beijing retaliates or if other trading partners see increased barriers.
- On Monday, Trump clarified he has “not talked about suspending military aid to Ukraine,” yet tensions emerged after Ukrainian officials rejected a prior “rare earth deal.”
- Meanwhile, the People’s Bank of China’s (PBOC) supportive stance might buffer some risk for China, but any slowdown there still undermines Australia’s commodity-driven economy.
AUD/USD technical outlook: Pair halts losing streak but remains vulnerable below key barriers
The AUD/USD pair rose by about 0.67% to the mid-0.6200 region, temporarily reversing its downward momentum from last week. While the Aussie stopped the bleeding on account of a softer US Dollar, the outlook stays bearish after multiple sessions of losses. The Relative Strength Index (RSI) currently sits in a lower band, although it is rising sharply and suggests some buyer interest returning. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram shows red bars, indicating lackluster upside strength. Key resistance stands near the 0.6300–0.6330 handle, with further hurdles around recent swing highs. A renewed tariff threat or weaker Chinese demand could easily cap gains and trigger a retest of last week’s lows.
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.
Author
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
