AUD/USD Price Forecast: Softens below 0.7150 after RBA rate hike, but maintains bullish bias

AUD/USD weakens to around 0.7145 in Tuesday’s early European session.
RBA has delivered a third consecutive interest rate hike, raising the OCR to 4.35%.
The positive tone of the pair prevails above the key 100-days EMA, with bullish RSI momentum.
The initial support level to watch is 0.7110; the first upside barrier is seen at 0.7230.

Lallalit Srijandorn FXStreet

The AUD/USD pair declines to near 0.7145 during the early European trading hours on Tuesday. The Australian Dollar (AUD) remains weak despite a widely expected 25 basis point (bps) interest rate hike by the Reserve Bank of Australia (RBA).

The RBA raised its Official Cash Rate (OCR) to 4.35% from 4.10% after concluding its May monetary policy meeting. According to the RBA Monetary Policy Statement, the central bank noted a significant increase in uncertainty over the domestic economic outlook and inflation.

RBA Governor Michele Bullock said the current monetary policy is "a bit restrictive," providing the board space to monitor how the Middle East conflict and domestic data evolve.

Technical Analysis:

In the daily chart, AUD/USD holds a constructive near-term bias as spot sits essentially on the 20-period Bollinger simple moving average, keeping the short-term trend supported after the recent pullback from this week’s highs. The 100-day exponential moving average (EMA) remains well below price and reinforces the broader upswing, while the Relative Strength Index (14) around 54 suggests moderately positive but not overstretched momentum.

On the downside, initial support is aligned with the Bollinger mid-line at the April 30 low of 0.7110, followed by the lower Bollinger band near 0.7060 and then the 100-day EMA at 0.6963, where a deeper correction would be expected to attract dip buyers. On the topside, the next notable resistance is the upper Bollinger band around 0.7230, and a clean break above this ceiling would strengthen the bullish tone and open the way for a continuation of the broader advance.

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

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

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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