Australian Dollar gives up terrain as markets fear US tariffs
- AUD/USD dips 0.20% to around 0.6200 on Friday.
- Upbeat Chinese GDP fails to offset RBA’s dovish signals.
- Trump’s impending tariff plans fuel cautious market sentiment.
AUD/USD returns to negative territory near 0.6200 on Friday, failing to preserve the momentum sparked by China’s stronger-than-expected economic indicators. Persistent expectations of lower Australian rates and apprehension over possible US import levies weigh on the pair.
Daily digest market movers: Aussie continues suffering from selling pressure, must hold above 0.6200
- The US Dollar finds pockets of demand as investors tread carefully prior to President-elect Trump’s inauguration.
- Markets anticipate that the new administration may announce revised tariff initiatives, potentially impacting global trade and boosting US inflation.
- On the bright side for the Aussie, China’s Q4 GDP expanded by 5.4% YoY, surpassing forecasts of 5% and outpacing the prior 4.6%. However, the Australian Dollar — a usual beneficiary of robust Chinese growth shows only modest support.
- The RBA’s inclination toward policy easing, along with subdued domestic sentiment, keeps the Aussie susceptible to further downside despite a short-lived mid-week bounce.
AUD/USD technical outlook: Pair wobbles around 20-day SMA, sellers push
The AUD/USD retreated by 0.22% to 0.6200 on Friday, pulling back from an earlier upswing near the weekly peak. The Relative Strength Index (RSI) hovers at 43, slipping deeper into negative territory.
Meanwhile, the Moving Average Convergence Divergence (MACD) histogram continues to display rising green bars, hinting at a measured bullish effort. After briefly sinking under the 20-day Simple Moving Average (SMA), the pair managed to climb back above it, suggesting some near-term support remains in place. However, lingering fears around trade policies and the RBA’s cautious stance could keep upside attempts limited in the sessions ahead.
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
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
