- AUD/USD consolidates around 0.6200 as the US PCE inflation data for November is on the horizon.
- The Fed is expected to keep interest rates steady in the first policy meeting of 2025.
- Investors await the RBA minutes for fresh interest rate guidance.
The AUD/USD pair trades inside Thursday’s trading range slightly above the two-year low of 0.6200 near 0.6230. The Aussie pair exhibits volatility contraction, with investors focusing on the United States (US) Personal Consumption Expenditure Price Index (PCE) data for November, which will be published at 13:30 GMT.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks lower after posting a fresh two-year high at 108.50.
Economists estimate the annual US core PCE inflation, a Federal Reserve’s (Fed) preferred inflation measure, to have accelerated to 2.9% from 2.8% in October. Month-on-month, the underlying inflation is estimated to have grown by 0.2%, slower than the former release of 0.3%.
The inflation data will influence market expectations for the Federal Reserve’s (Fed) likely interest rate action in the January meeting. According to the CME FedWatch tool, traders are confident that the central bank will leave interest rates at their current levels of 4.25%-4.50%.
Meanwhile, the Australian Dollar (AUD) will be influenced by the Reserve Bank of Australia (RBA) minutes for the monetary policy meeting that took place on December 10, which will be released on Tuesday. The RBA left its Official Cash Rate (OCR) steady at 4.35%, a level the central bank has been maintaining since November 2023.
RBA Governor Michele Bullock didn’t guide a specific interest rate cut path and committed to be data-dependent but was confident that wages and demand are slowing.
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 rose to fresh highs around 1.1240
EUR/USD maintained its bullish momentum on Thursday, climbing to the 1.1240 region as the US Dollar accelerated its decline amid growing concerns about the economic fallout from Trump's tariffs.
GBP/USD picks up pace, challenges 1.3000
GBP/USD made significant gains, edging just pips shy of the psychological 1.3000 barrier. The advance came amid trade war jitters and a sharp sell-off in the Greenback following the announcement of 145% US tariffs on China.
Gold flirts with record peaks near $3,175, Dollar tumbles
Gold continued its record-setting rally on fresh tariff-related headlines, surging past the $3,170 mark per troy ounce after the White House confirmed new tariffs, sparking another round of US Dollar selling.
Cardano stabilizes near $0.62 after Trump’s 90-day tariff pause-led surge
Cardano stabilizes around $0.62 on Thursday after a sharp recovery the previous day, triggered by US Donald Trump’s decision to pause tariffs for 90 days except for China and other countries that had retaliated against the reciprocal tariffs announced on April 2.
Trump’s tariff pause sparks rally – What comes next?
Markets staged a dramatic reversal Wednesday, led by a 12% surge in the Nasdaq and strong gains across major indices, following President Trump’s unexpected decision to pause tariff escalation for non-retaliating trade partners.
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.