AUD/USD slips from 0.7100 as tariff reset and CPI loom large
- Australian Dollar retreats from multi-month highs as traders weigh post-SCOTUS tariff uncertainty and Wednesday's CPI.
- Australian January Consumer Price Index (CPI) on Wednesday is the week's key event, with the Reserve Bank of Australia's hawkish stance under the microscope after February's rate hike to 3.85%.
- The PBoC rate decision on Tuesday is expected to hold the one-year Loan Prime Rate (LPR) at 3.00%, while Trump's new 15% global tariff under Section 122 of the Trade Act adds fresh uncertainty for risk sentiment.
The Reserve Bank of Australia (RBA) raised its cash rate by 25 basis points to 3.85% earlier this month, citing a material pick-up in inflation and stronger-than-expected private demand. Wednesday's January CPI release will be the first major test of the RBA's hawkish position, with the previous reading showing headline inflation running at 3.8% and the trimmed mean at 3.3%, both above the 2% to 3% target band. Tuesday's People's Bank of China (PBoC) decision is widely expected to hold rates steady, and while it could shift broader Asia-Pacific flows, the consensus for no change limits its near-term impact on the Australian Dollar (AUD). The tariff backdrop has shifted significantly after the US Supreme Court struck down Trump's sweeping International Emergency Economic Powers Act (IEEPA) tariffs last Friday in a 6-3 decision, prompting the President to threaten a new 15% global tariff under Section 122 of the Trade Act, effective Tuesday. RBA Governor Bullock's speech on Wednesday and a string of Federal Reserve speakers round out a busy calendar that could reshape rate expectations on both sides of the pair.
Bearish session below 0.7100 as Stochastic fades from the overbought zone
On the daily chart, AUD/USD fell 0.39% on Monday, pulling back from a failed attempt to reclaim the 0.7100 handle. The pair continues to trade well above the rising 50-day Exponential Moving Average (EMA) at 0.6880 and the 200-day EMA at 0.6650, confirming that the broader uptrend from the January swing low near 0.6667 is still valid. The Stochastic Oscillator has crossed bearish and is rolling lower from the overbought zone, suggesting near-term momentum is fading after the rally to the year-to-date high at 0.7147. Recent sessions show a cluster of small-bodied candles and doji near the 0.7050 to 0.7100 band, pointing to indecision. Immediate support sits at 0.7000, with resistance at 0.7100 and the 0.7147 high; a sustained break above would open the door toward 0.7200, while a loss of 0.7000 could see a deeper pullback toward the 50-day EMA.
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
Joshua Gibson
FXStreet
Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.
