- AUD/USD edges lower to 0.6210 in Monday’s early Asian session.
- Fed officials said the job is not done on inflation.
- The Aussie remains under pressure amid expectations of RBA rate cuts and Trump tariff threats.
The AUD/USD pair softens to near 0.6210 during the early Asian session on Monday. The rising bets that the Reserve Bank of Australia (RBA) will be compelled to start cutting interest rates exert some selling pressure on the Australian Dollar (AUD). The Chinese December Services Purchasing Managers Index (PMI) will be the highlight later on Monday.
After lowering its benchmark rate at three straight meetings, the US Federal Reserve (Fed) is anticipated to pause its easing cycle at the January meeting. Richmond Fed President Thomas Barkin noted on Friday that the Fed's benchmark policy rate should stay restrictive until it is more certain that inflation is returning to its 2% target. Meanwhile, Fed Governor Adriana Kugler and San Francisco Fed President Mary Daly emphasised the delicate balancing act facing US central bankers this year as they look to slow their pace of easing cycle.
Investors will closely monitor the US employment data for December, which is due later on Friday. This report could offer some hints about the Fed’s interest rate outlook in 2025. "Investors are going to want to see confirmation that labour trends remain solid, which means the economic outlook probably remains firm," noted Anthony Saglimbene, chief market strategist at Ameriprise Financial.
Australia’s November Consumer Price Index (CPI), released on Wednesday, will be in the spotlight. If the reading comes in below market expectations, this could trigger the chance of an RBA rate cut at its February meeting, weighing on the AUD. Additionally, the prospect of a trade war between the US and China could undermine the China-proxy Aussie, as China is a major trading partner for Australia.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD clings to gains above 1.0400 ahead of US data
EUR/USD stays in positive territory above 1.0400 in the second half of the day on Tuesday. The data from the Euro area showed that the annual HICP inflation rose to 2.4% in December, as expected. Investors await ISM Services PMI and Job Openings data from the US.
GBP/USD retreats from weekly highs, trades below 1.2550
GBP/USD loses its traction and trades below 1.2550 after rising toward 1.2600 earlier in the day. The cautious market stance helps the US Dollar (USD) limit its losses and caps the pair's upside as focus shifts to key macroeconomic data releases from the US.
Gold recovers to $2,650 area, struggles to gather momentum
Following Monday's indecisive action, Gold gains traction and rises to the $2,650 area. With the benchmark 10-year US Treasury bond yield holding above 4.6% ahead of key US data releases, however, XAU/USD struggles to gather bullish momentum.
Bitcoin Price Forecast: BTC holds above $100K following Fed’s Michael Barr resign
Bitcoin edges slightly down to around $101,300 on Tuesday after rallying almost 4% the previous day. The announcement of Michael S. Barr’s resignation as Federal Reserve Vice Chair for Supervision on Monday has pushed BTC above the $100K mark.
Five fundamentals for the week: Nonfarm Payrolls to keep traders on edge in first full week of 2025 Premium
Did the US economy enjoy a strong finish to 2024? That is the question in the first full week of trading in 2025. The all-important NFP stand out, but a look at the Federal Reserve and the Chinese economy is also of interest.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.