- AUD/USD plunges to near 0.6235 as the Australian Dollar underperforms its peers.
- The RBA is expected to keep interest rates steady at 4.1% on Tuesday.
- The US Dollar rises ahead of April 2, when US President Trump will release planned reciprocal tariffs.
The AUD/USD pair plummets to near 0.6235 in Monday’s North American session, the lowest level seen in more than three weeks. The Australian Dollar (AUD) underperforms its peers across the board ahead of the Reserve Bank of Australia’s (RBA) monetary policy meeting on Tuesday.
Investors expect the RBA to leave its Official Cash Rate (OCR) at their current levels of 4.1%. Therefore, investors will pay close attention to the monetary policy guidance by the RBA.
Meanwhile, caution among market participants ahead of so-called “Liberation Day” on Wednesday, when United States (US) President Donald Trump will announce reciprocal tariffs, has dampened the Australian Dollar’s (AUD) appeal. Investors expect Trump's tariffs to have a significant impact on the Chinese economic outlook, given that the world’s second largest nation has the highest trade surplus against the US.
Fresh escalation in uncertainty over the Chinese economic outlook weighs on the Australian Dollar, given the heavy reliance of Australia on its exports to China.
During North American trading hours, the US Dollar (USD) ticks higher after recovering intraday losses. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rebounds to near 104.20 after posting a fresh 10-day low around 103.75 earlier in the day.
AUD/USD breaks below the upward-sloping border of the Ascending Triangle chart pattern formation around 0.6275 on the daily timeframe, which is plotted from the February low of 0.6087. The horizontal resistance of the above-mentioned chart pattern is placed from the February 21 high of 0.6408. An ascending triangle formation indicates a volatility contraction but it expands significantly after a breakdown of the same.
The 20-day Exponential Moving Average (EMA) trades higher near 0.6290, suggesting a downside trend.
The 14-day Relative Strength Index (RSI) falls to near 40.00. A fresh bearish momentum would trigger if the RSI falls below the same.
More downside would appear if the pair breaks below the March 4 low of 0.6187 towards the February low of 0.6087, followed by the psychological support of 0.6000.
On the flip side, a sustenance move above the March 18 high of 0.6390 will open doors to the December 5 high of 0.6456 and the round-level resistance of 0.6500.
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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