Australian Dollar gets caught between AI selloff and 5% US yields
- AUD/USD slides as AI worries hit equities and sentiment.
- Five-percent Treasury yields boost Dollar’s haven and carry appeal.
- Fed hike odds near full pricing before Australia, China data.
The Aussie Dollar registered losses of over 0.73% on Monday as sentiment soured due to a fall in technology shares, along with heightened tensions in the Middle East, high energy prices, and a jump in bond yields. The AUD/USD trades at 0.7118, after hitting a high of the day (HOD) of 0.7168.
AUD/USD falls as tech weakness, Oil risks and Fed bets lift Dollar
The leaders of AI companies in the US expressed concerns about the rapid pace of advances in the industry and called for a slowdown. This triggered a leg lower in US equity markets, while the US Dollar – boosted by the US 10-year T-bond yield past 5% - is poised to end Monday’s session up 0.33%, according to the US Dollar Index (DXY).
The DXY, which measures the advance of the American Dollar against its six peers, reclaims the 99.00 level, up 99.46.
Geopolitics are playing a big role, following Yemen’s Houthis attack on a Saudi Oil pipeline, which could be shut for several weeks, triggering a shortage of about 7 million barrels per day. Hence, investors' inflation expectations continued to rise following last week's US inflation data, which pushed traders to price in almost a full rate hike by the Fed.
Money markets had priced in a 97.50% chance for a 25 basis points rate hike at the September 15-16 Fed meeting.
On Monday, the US economic docket was absent, but it would gather pace on Tuesday, with the ADP Employment Change 4-week average.
In Australia, the Aussie Dollar is being pressured by a downbeat mood, which has increased the Greenback’s appeal as a haven. However, the ANZ-Roy Morgan Australian Consumer Confidence is expected, while some Chinese data, such as Retail Sales, could influence AUD/USD, given Australia's status as one of the largest trading partners in the region.
AUD/USD Price Forecast: Technical outlook
In the daily chart, AUD/USD trades at 0.7118, maintaining a mildly bullish near-term bias as it holds above the simple moving average triple at 0.7070 and a series of rising trend-line supports clustered between roughly 0.7028 and 0.6902. The Relative Strength Index (14) has retreated toward 46, hinting at easing upside momentum but not yet signaling a decisive bearish shift while price remains supported by these underlying structural levels.
On the topside, initial resistance is seen at the horizontal barrier near 0.7198, with the upward trend line projected around 0.7364 acting as the next significant cap should bulls extend the advance. On the downside, a move back below the nearby support band formed by the simple moving averages around 0.7070 and the rising trend line at 0.7028 would expose deeper support near 0.6902, while any sustained break lower would leave the prior trend-line break region around 0.6381 as a more distant structural floor.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
