AUD/USD Price Forecast: Sets for volatility expansion
- AUD/USD rises at the expense of the US Dollar, which is down due to the US credit rating downgrade.
- US Republicans didn’t pass President Trump’s new tax bill.
- The RBA lowered its OCR by 25 bps to 3.85% and kept hopes of more interest rate cuts on the table.
The AUD/USD pair moves higher to near 0.6460 during European trading hours on Wednesday. The Aussie pair gains as the US Dollar (USD) continues to underperform its peers on the back of the United States (US) Sovereign Credit rating erosion. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slides to near 99.50, the lowest level seen in two weeks.
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 British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.51% | -0.15% | -0.59% | -0.27% | -0.36% | -0.29% | -0.52% | |
| EUR | 0.51% | 0.36% | -0.11% | 0.22% | 0.18% | 0.23% | -0.01% | |
| GBP | 0.15% | -0.36% | -0.44% | -0.12% | -0.16% | -0.12% | -0.38% | |
| JPY | 0.59% | 0.11% | 0.44% | 0.31% | 0.25% | 0.31% | 0.07% | |
| CAD | 0.27% | -0.22% | 0.12% | -0.31% | -0.08% | 0.00% | -0.26% | |
| AUD | 0.36% | -0.18% | 0.16% | -0.25% | 0.08% | 0.06% | -0.19% | |
| NZD | 0.29% | -0.23% | 0.12% | -0.31% | -0.01% | -0.06% | -0.25% | |
| CHF | 0.52% | 0.00% | 0.38% | -0.07% | 0.26% | 0.19% | 0.25% |
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).
On Friday, Moody’s downgraded the US long-term issuer rating by one notch to Aa1 from Aaa amid concerns over a large fiscal deficit and hopes of a further increment in the total debt after the clearance of President Donald Trump’s tax-cut bill.
However, US President Trump failed to convince Republicans to back the new tax bill in a closed meeting at the Capitol Hill on Tuesday.
Meanwhile, the Australian Dollar (AUD) trades mixed on Wednesday after a 25-basis point (bps) interest rate reduction by the Reserve Bank of Australia (RBA) the previous day. The RBA lowered its Official Cash Rate (OCR) by 25 bps to 3.85%, as expected, amid confidence that inflation will stay lower. The RBA kept the door open for further monetary policy expansion if it continues to see inflation coming down.
AUD/USD consolidates in a tight range of 0.6340-0.6515 for over a month. The pair wobbles near the 20-day Exponential Moving Average (EMA) around 0.6410, indicating a sideways trend.
The 14-day Relative Strength Index (RSI) oscillates inside the 40.00-60.00, suggesting a volatility contraction.
More upside would appear towards the November 25 high of 0.6550 and the round-level resistance of 0.6600 if the pair if the pair breaks above the May 7 high of 0.6515.
On the flip side, a downside move below the March 4 low of 0.6187 will expose it towards the February low of 0.6087, followed by the psychological support of 0.6000.
AUD/USD daily chart
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.
