AUD/USD gains after US CPI data
- AUD/USD continues its upward trajectory, surpassing the 0.6300 hurdle as bullish momentum builds.
- US inflation data came in lower than expected, increasing speculation about an earlier-than-anticipated Fed rate cut.
- Trade tensions persist as the US moves forward with fresh tariffs, raising concerns about global economic growth.
- Technical indicators show improving bullish momentum, with AUD/USD eyeing the 0.6360 resistance zone.
The AUD/USD pair added to Tuesday’s uptick and trespassed the 0.6300 hurdle despite a decent rebound in the Greenback. The pair extended gains on Wednesday, supported by softening United States (US) inflation data, which bolstered expectations that the Federal Reserve (Fed) may adjust interest rates sooner than previously anticipated. While the US Dollar (USD) attempted a recovery, risk sentiment remained favorable for the Australian Dollar (AUD), opening the door for a potential test of the monthly highs near 0.6360.
Daily digest market movers: Australian Dollar extends gains as US CPI weakens
- The US Consumer Price Index (CPI) inflation slowed faster than anticipated in February, with headline CPI inflation declining to 0.2% month-over-month and 2.8% year-over-year.
- The cooling inflation data, while still above the Federal Reserve’s 2% target, reinforced expectations of potential policy adjustments. Fed rate markets now price in better-than-even odds of a rate cut by June, shifting from the previous consensus of July.
- US trade policy remains in focus as President Donald Trump reiterated his intent to impose tariffs on imported cars. During a meeting with Irish Prime Minister Micheál Martin, Trump emphasized that the European Union has been “tough” on US trade, suggesting potential further protectionist measures. The comments fueled market uncertainty regarding upcoming trade negotiations.
- The Australian Dollar remained resilient despite ongoing US-China trade tensions. Concerns persist that escalating tariffs could significantly impact Australian business activity, given Australia’s heavy reliance on exports to China. So far, the US has imposed 20% tariffs on Chinese imports, and the risk of additional measures remains.
AUD/USD Technical Analysis: Upside momentum strengthens toward 0.6360
AUD/USD rose on Wednesday, moving toward the 0.6315 region during the American session, extending its rebound from earlier in the week. Despite an attempted recovery in the US Dollar, the pair maintained bullish traction, with technical indicators showing improving conditions.
The Moving Average Convergence Divergence (MACD) indicator continues to print decreasing red histogram bars, indicating fading bearish pressure. Meanwhile, the Relative Strength Index (RSI) has risen to 54, entering positive territory and suggesting increasing buying momentum.
The pair has regained its footing and is approaching key resistance levels. The next upside target stands near 0.6360, where a break could accelerate bullish momentum. On the downside, initial support is seen around 0.6280, with stronger demand expected near 0.6250 if selling pressure re-emerges.
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.
