Australian Dollar jumps to highs since December on USD weakness
- Aussie edges higher following delayed reciprocal tariffs.
- US Retail Sales contracted, disappointing market forecasts.
- Fed watchers see 55% chance rates remain on hold in March.
- RBA rate cut speculation remains amid cooling domestic inflation.
The Australian Dollar (AUD/USD) strengthens for the second consecutive day on Friday, supported by US President Donald Trump’s decision to delay implementing reciprocal tariffs. At the same time, concerns linger over a potential global trade war, especially if further tariff measures are announced later. Market participants also dumped the USD after weak Retail Sales data from the US.
Daily digest market movers: Aussie gains after US data
- President Trump postponed a 25% tariff on selected imports, offering short-lived optimism for risk-linked currencies like the Australian Dollar.
- Recent trade frictions have tempered the US Dollar’s gains as the currency treads water amid Washington’s uncertain stance on tariffs.
- Thursday’s US Retail Sales data showed a -0.9% MoM contraction in January, missing the -0.1% forecast and stoking fears of a slowing economy.
- Industrial Production advanced 0.5% in January , down from 1% in December yet beating the 0.3% estimate, generating mixed signals about the health of the US economy.
- Poor Retail Sales figures could prompt traders to reduce bets on the Federal Reserve maintaining interest rates in the 4.25%-4.50% range for an extended period, though Fed Chair Jerome Powell hinted that policy changes hinge on verifiable inflation or labor-market weakness.
- Despite the Aussie’s steady tone, speculation of a 25-basis-point Reserve Bank of Australia rate cut remains high, citing cooling inflationary pressure and a subdued consumer outlook.
AUD/USD technical outlook: Bulls maintain momentum above 20-day Simple Moving Average
The AUD/USD pair gained 0.65% to reach 0.6355 on Friday, extending its climb above the 20-day Simple Moving Average (SMA). The Relative Strength Index (RSI) sits at 66, hovering near overbought territory but still rising sharply, signaling robust buyer interest.
Meanwhile, the Moving Average Convergence Divergence (MACD) histogram prints increasing green bars, indicating building upside momentum.
With the pair hitting its highest levels since December, traders remain alert to looming uncertainties, including fresh tariff announcements and US data surprises, which could rapidly shift the market’s direction.
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.
