Australian Dollar struggles as US data and trade fears weigh

AUD dips 0.36% to 0.6215 on Wednesday.
Wall Street trims Trump-inspired losses, aiding brief Aussie rebound.
Australian Retail Sales, Trade figures eyed in Asian session.
FOMC Minutes confirm gradual approach to 2025 rate cuts.

The Australian Dollar declined by 0.36% to 0.6215 on Wednesday despite Wall Street reversing some earlier risk-off moves tied to President-elect Donald Trump’s tariff threats. Although the Aussie drew marginal support from the late US equity bounce, it remains vulnerable ahead of key November Retail Sales and External Trade data due in the Asian session. Traders look for fresh catalysts after the Federal Open Market Committee (FOMC) Meeting Minutes and local inflation data failed to offer much optimism.

Daily digest market movers: Aussie weakens after US labor market data, local inflation data

The Australian Dollar shed over 0.40% at one point versus the USD, pressured by Trump’s potential emergency tariff move and strong labor market data.
On the US data front, US Initial Jobless Claims dropped from 211K to 201K, below forecasts of 218K, underscoring a strong labor market.
ADP data showed 122K private jobs added in December, missing the 140K forecast, as hiring and pay gains slowed.
On the local front, Australian Weighted CPI for November rose 2.3% YoY, slightly above estimates, but the trimmed mean dipped from 3.5% to 3.2%.
FOMC Meeting Minutes indicated a cautious approach to further rate cuts and highlighted inflation risks from trade policy.
Traders turn to Aussie Retail Sales and Trade Balance data, due Thursday, for additional insight into domestic economic momentum.

AUD/USD technical outlook: Aussie falters at 20-day SMA amid fading momentum

The Relative Strength Index (RSI) stands at 35, drifting lower in negative territory, while the Moving Average Convergence Divergence (MACD) histogram prints decreasing green bars. The pair faced resistance at its 20-day Simple Moving Average (SMA), losing traction as risk sentiment deteriorated.

Without a clear catalyst, downside risks may persist if tariff fears escalate and US economic data remain supportive of the US Dollar.

Australian Dollar FAQs

What key factors drive the Australian Dollar?

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.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

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.

How does the health of the Chinese Economy impact the Australian Dollar?

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.

How does the price of Iron Ore impact the Australian Dollar?

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.

How does the Trade Balance impact the Australian Dollar?

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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