- AUD/USD jumps to near 0.6420 with investors focusing on the RBA monetary policy announcement on Tuesday.
- The RBA is expected to leave interest rates steady at 4.35%.
- Investors expect the Fed to cut its key borrowing rates next week by 25 bps to 4.25%-4.50%.
The AUD/USD pair finds temporary support and advances to near 0.6420 in Monday’s European session after posting a fresh four-month low near 0.6370 on Friday. The Aussie pair rebounds slightly with investors focusing on the Reserve Bank of Australia’s (RBA) monetary policy decision, which will be announced on Tuesday.
Market experts expect the RBA to leave interest rates unchanged at 4.35% but would temper its hawkish tone as the Australian Q3 Gross Domestic Product (GDP) growth came in weaker-than-expected, a scenario that would be favorable for the Australian Dollar (AUD).
Analysts at ANZ and Westpac expect the RBA to start reducing interest rates from May 2025. They have pushed their forecasts from March 2025 amid concerns over sticky price pressures.
Meanwhile, the US Dollar (USD) ticks higher even though traders are confident that the Federal Reserve (Fed) will cut interest rates by 25 basis points (bps) to 4.25%-4.50% in the policy meeting on December 18. This week, investors will pay close attention to the United States (US) Consumer Price Index (CPI) data for November, which will release on Wednesday.
The near-term trend of the AUD/USD pair is bearish as all short-to-long-term Exponential Moving Averages (EMAs) are declining.
The 14-day Relative Strength Index (RSI) wobbles below 40.00, suggesting that a bearish momentum is intact.
More downside towards the August low of 0.6348 and the round-level support of 0.6300 would appear if the Aussie pair fails to hold recovery above the round-level support 0.6400.
On the flip side, a decisive recovery above the November 25 high of 0.6550 will drive the asset towards the round-level resistance of 0.6600, followed by September 11 low of 0.6622.
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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