Australian Dollar strengthens on improved sentiment despite lingering China risks
- AUD/USD trades around the 0.6400 zone, rebounding strongly during Monday’s American session.
- Analysts flag that AUD remains vulnerable due to its exposure in China and the likely May RBA rate cut.
- Key resistance is seen near 0.6410, with technical indicators mostly aligned to the upside.
The Australian Dollar (AUD) regained ground on Monday, lifting toward the 0.6400 area during the American session, as improving risk sentiment and a broadly weaker US Dollar (USD) helped AUD/USD shake off recent losses. Earlier gains were fueled by optimism around Chinese GDP, which grew 5.4% year-over-year in Q1, surpassing forecasts. However, the rebound remains fragile amid ongoing US-China trade tensions and the Aussie’s role as a proxy for Chinese demand.
ING strategists continued to emphasize that the Aussie remains exposed as a barometer of the US-China trade dispute, noting that while the RBA is likely to ease policy next month, the bigger driver for AUD continues to be developments in trade and commodities. Domestically, the Australian economy faces pressure from global decoupling, and the RBA’s expected May rate cut could keep upside limited.
Daily digest market movers: Gold price surges while US Dollar slumps
- Gold posted a fresh record near $3,319 per ounce, supported by safe-haven demand and lower Treasury yields.
- Trump directed a probe into possible tariffs on all critical mineral imports, citing national security concerns.
- China retaliated with new export licensing for rare earths, increasing economic pressure on key US sectors.
- Q1 GDP in China surprised to the upside at 5.4% YoY; March activity indicators also beat forecasts.
- Chinese officials signaled a willingness to resume trade talks if the US adopts a more respectful tone.
- The Australian Dollar remains tied to US-China tensions, limiting potential upside despite strong risk appetite.
- RBA is still expected to cut rates in May, but China proxy status makes AUD vulnerable to external headwinds.
- The DXY trades defensively near the 99.70 zone, failing to benefit meaningfully from upbeat US data.
Technical analysis: AUD/USD maintains upside bias
The AUD/USD pair is flashing a bullish technical outlook after rallying into the 0.64 region. The Moving Average Convergence Divergence (MACD) indicator is generating a fresh buy signal, while the Relative Strength Index (RSI) hovers near 59, in neutral-positive territory. Supporting the bullish tilt are several key moving averages: the 10-day EMA at 0.6264, 10-day SMA at 0.6202, 20-day SMA at 0.6244, and 100-day SMA at 0.6289—all pointing upward. Only the longer-term 200-day SMA, positioned at 0.6480, remains tilted downward, suggesting some resistance may persist further up the curve.
Despite some conflicting signals from the Commodity Channel Index and the Stochastic Oscillator—both showing neutral readings—the overall structure favors a continuation higher if momentum holds. Immediate support lies near 0.6325 and 0.6288, while resistance can be seen at 0.6412, followed by 0.6479.
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.
