AUD/USD Price Forecast: Holds steady below mid-0.7200s as bulls await Trump-Xi summit

AUD/USD remains on the back foot for the second straight day amid a bullish US Dollar.
The lack of follow-through selling warrants caution before positioning for further losses.
The bullish technical setup backs the case for the emergence of dip-buying at lower levels.

Haresh Menghani FXStreet

The AUD/USD pair struggles to capitalize on the overnight bounce from the 0.7200 neighborhood and trades with a negative bias for the second straight day on Wednesday. Spot prices, however, lack bearish conviction and currently trade around the 0.7235 region as investors opt to move to the sidelines ahead of the Trump-Xi summit.

In the meantime, the US Dollar (USD) stands firm near its highest level in over one week amid reviving bets for an interest rate hike by the US Federal Reserve's (Fed), bolstered by Tuesday's hot US consumer inflation figures. Furthermore, fading hopes for a US-Iran peace deal underpin the USD's safe-haven status and contribute to capping the risk-sensitive Aussie. However, the Reserve Bank of Australia's (RBA) hawkish outlook continues to act as a tailwind for the AUD/USD pair.

Spot prices hold well above the 100-period Exponential Moving Average (EMA), keeping a mild bullish bias. Moreover, the Relative Strength Index (RSI) hovers just above the neutral 50 line, hinting at modest upside pressure. However, the Moving Average Convergence Divergence (MACD) flattens slightly below zero and suggests only tentative momentum, making it prudent to wait for acceptance above mid-0.7200s before placing fresh bullish bets on the AUD/USD pair.

On the downside, initial support is seen at the 100-period EMA around 0.7190, where a break would expose a deeper corrective pullback and weaken the current constructive tone. As long as the AUD/USD pair remains above this moving average, dips are likely to be contained, keeping the broader focus on whether buyers can sustain the recovery and build a more convincing advance in the sessions ahead.

(The technical analysis of this story was written with the help of an AI tool.)

AUD/USD 4-hour chart

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.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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