AUD/USD jumps to near 0.6230 as US Dollar tumbles, upside remains capped
- AUD/USD gains sharply to near 0.6230 as the US Dollar faces strong selling pressure.
- Fed dovish bets have escalated as US Personal Spending declined in January.
- The Australian Dollar would face selling pressure if Trump imposed additional 10% tariffs on China.
The AUD/USD pair climbs to near 0.6230 in North American trading hours on Monday. The Aussie pair gains as the US Dollar (USD) faces strong selling pressure after comments from United States (US) Commerce Secretary Howard Lutnick indicated that tariffs by President Donald Trump on Canada and Mexico could be lower than 25% as stated earlier.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, tumbles to near 106.80.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.93% | -0.84% | 0.29% | -0.24% | -0.40% | -0.26% | -0.32% | |
| EUR | 0.93% | -0.02% | 1.00% | 0.50% | 0.43% | 0.49% | 0.43% | |
| GBP | 0.84% | 0.02% | 1.13% | 0.53% | 0.45% | 0.51% | 0.46% | |
| JPY | -0.29% | -1.00% | -1.13% | -0.30% | -0.63% | -0.48% | -0.60% | |
| CAD | 0.24% | -0.50% | -0.53% | 0.30% | -0.01% | -0.00% | -0.07% | |
| AUD | 0.40% | -0.43% | -0.45% | 0.63% | 0.00% | 0.07% | 0.00% | |
| NZD | 0.26% | -0.49% | -0.51% | 0.48% | 0.00% | -0.07% | -0.06% | |
| CHF | 0.32% | -0.43% | -0.46% | 0.60% | 0.07% | -0.00% | 0.06% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Over the weekend, Howard Lutnick said to Fox News that there are going to be “tariffs on Mexico and Canada on Tuesday” but we are going to leave that for the “President and his team to negotiate”.
Additionally, escalating Federal Reserve (Fed) dovish bets have also weighed on the US Dollar. The probability for the Fed to cut interest rates in the June policy meeting has increased to 74% from 63% a week ago, according to the CME FedWatch tool. Fed dovish bets have swelled due to a decline in the US Personal Spending data for January.
Meanwhile, the upside in the Aussie pair remains capped as Donald Trump is poised to impose additional 10% tariffs on China, alongwith his North American peers. The impact of Trump’s tariffs is also unfavorable for the Australian Dollar (AUD) knowing that Australian exports rely heavily on the Chinese economy.
Going forward, investors will focus on the Reserve Bank of Australia (RBA) minutes for the February meeting, which will be released on Tuesday. In February, the RBA reduced its Official Cash Rate (OCR) by 25 basis points (bps) to 4.10%. This was the first interest rate cut decision by the RBA since November 2020. RBA Governor Michele Bullock guided a cautious stance on further policy-easing as the battle against inflation is not over yet.
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
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
