AUD/USD slumps to near 0.6220 on soft Aussie CPI, Fed policy in focus
- AUD/USD declines to near 0.6220 as soft Australian CPI data has boosted RBA dovish bets.
- Year-on-year Australian CPI rose at a slower pace of 2.4% in the last quarter of 2024.
- The Fed is certain to announce a pause in the current policy-easing spell.
The AUD/USD pair falls sharply to near 0.6220 in Wednesday’s European session. The Aussie pair faces sharp selling pressure as the Australian Dollar (AUD) weakens across the board after the release of the softer-than-projected Australian Q4 Consumer Price Index (CPI) data, which fuelled bets supporting the Reserve Bank of Australia (RBA) to start reducing interest rates from the policy meeting in February.
Australian Dollar PRICE Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.25% | 0.16% | -0.08% | 0.17% | 0.42% | 0.35% | 0.20% | |
| EUR | -0.25% | -0.09% | -0.32% | -0.09% | 0.17% | 0.12% | -0.05% | |
| GBP | -0.16% | 0.09% | -0.25% | 0.00% | 0.26% | 0.20% | 0.04% | |
| JPY | 0.08% | 0.32% | 0.25% | 0.24% | 0.50% | 0.42% | 0.28% | |
| CAD | -0.17% | 0.09% | -0.01% | -0.24% | 0.25% | 0.19% | 0.04% | |
| AUD | -0.42% | -0.17% | -0.26% | -0.50% | -0.25% | -0.06% | -0.22% | |
| NZD | -0.35% | -0.12% | -0.20% | -0.42% | -0.19% | 0.06% | -0.16% | |
| CHF | -0.20% | 0.05% | -0.04% | -0.28% | -0.04% | 0.22% | 0.16% |
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 Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
Australian Bureau of Statistics reported that inflationary pressures rose at a steady pace of 0.2% in the last quarter of 2024 on a sequential basis, slower than estimates of 0.3%. Compared to the same quarter of the previous year, inflation rose at a slower pace of 2.4% than expectations of 2.5% and 2.8% growth in the third quarter of 2024. However, the Monthly CPI grew at a faster pace of 2.5% in December, as expected, compared to a 2.3% increase in November, but is broadly inside the RBA’s range of 2%-3%.
Soft Australian inflation data have boosted market expectations that the RBA will pivot to policy easing at its next policy meeting.
Meanwhile, deepening fears that United States (US) President Donald Trump will impose 10% tariffs on China has also kept the Aussie Dollar on the backfoot, being Australia a leading trading partner of China. On Tuesday, White House Press Secretary Karoline Leavitt reported that the President is “very much still considering 10% tariffs on China” from February 1.
On the US Dollar (USD) front, investors await the Federal Reserve’s (Fed) monetary policy decision, which will be announced at 19:00 GMT. The Fed is widely anticipated to keep interest rates steady in the range of 4.25%-4.50%.
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.
