- AUD/USD appreciates due to thin trading volumes ahead of the New Year holiday.
- The US Dollar remains subdued as the 10-year bond yield depreciates to 4.59%.
- The Australian Dollar gained support as the 10-year government bond yield rose to 4.50%, near its monthly highest.
The AUD/USD pair halts its five-day losing streak, trading around 0.6200 during the European hours on Monday. The pair appreciates as the US Dollar (USD) remains softer amid thin trading ahead of New Year’s holiday, while US Treasury bond yields depreciate.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against its six major peers, trades around 108.00, with 2-year and 10-year yields on US Treasury coupons standing at 4.30% and 4.59%, respectively, at the time of writing.
The US Dollar may receive upward support from growing expectations of fewer rate cuts next year by the US Federal Reserve (Fed). Traders continue to digest the Fed’s hawkish pivot. The Fed cut its benchmark interest rate by a quarter point at the December meeting, and the latest Dot Plots indicated two rate cuts next year.
Additionally, the Australian Dollar (AUD) finds support from an improved 10-year government bond yield, which is trading around 4.50%, its highest level in over a month. Meanwhile, the Reserve Bank of Australia (RBA) has reiterated its commitment to maintaining a "sufficiently restrictive" policy stance until inflation uncertainty diminishes and the 2–3% target range is achieved.
The RBA emphasized that its primary focus is bringing inflation back to target, relying on a data-driven approach for future rate decisions. The December meeting minutes highlighted growing confidence among central bank’s policymakers in their ability to control inflation, although they acknowledged ongoing risks. Market expectations suggest a divided outlook, with some anticipating a 25 bps rate cut as early as February, while a full easing is more widely priced in by April.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD holds firm near 1.1100 ahead of US NFP, Powell
EUR/USD is holding ground near 1.1100 in the early European morning on Friday. Recession fears due to a global trade war lft Fed rate cut expectations, exacerbating the US Dollar's pain while keeping the pair afloat. Traders look to the US NFP report and Fed Chair Powell's speech for fresh directives.
GBP/USD retakes 1.3100 as US NFP data looms
GBP/USD is defending minor bids above 1.3100 in early Europe on Friday. Persistent US Dollar weakness on recession fears and dovish Fed expectations underpin the pair as traders look forward to the US payrolls data and Fed Chair Powell speech for placing fresh bets.
Gold price hovers near $3,100; bullish bias remains ahead of US NFP report
Gold price meets with a fresh supply on Friday, though the downside potential seems limited. Trump’s tariffs-inspired risk-off mood might continue to act as a tailwind for the precious metal. Fed rate cut bets weigh on the USD and should contribute to limiting losses for the XAU/USD pair.
XRP finds new lifeline as Coinbase Derivatives eyes XRP futures on April 21
Ripple price reclaims the $2.00 support level and trades at $2.06 at the time of writing on Friday in the wake of a drawdown to $1.96 during Thursday’s session. Traders continue to exercise caution after Trump’s tariffs hit 100 countries, as per a CryptoQuant report.
Trump’s “Liberation Day” tariffs on the way
United States (US) President Donald Trump’s self-styled “Liberation Day” has finally arrived. After four straight failures to kick off Donald Trump’s “day one” tariffs that were supposed to be implemented when President Trump assumed office 72 days ago, Trump’s team is slated to finally unveil a sweeping, lopsided package of “reciprocal” tariffs.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.