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Australian Dollar holds gains near 0.7100 despite Fed rate hike, IMF urges RBA to stay hawkish

AUD/USD gathers strength to near 0.7090 in Thursday’s early Asian session.
The Fed decided to increase the benchmark rate to a range of 3.75% to 4.0% on Wednesday.
IMF said the RBA should stand ready to hike rates as needed, citing inflation upside risks.

Lallalit Srijandorn FXStreet

The AUD/USD pair gains ground to around 0.7090 during the early Asian trading hours on Thursday. Traders continue to assess the Federal Reserve (Fed) interest rate hike and US President Donald Trump’s comments. The US Initial Jobless Claims data will be published later on Thursday.

The Fed raises the interest rates for the first time in three years to 3.75%-4.0% on Wednesday, as widely expected. Fed Chair Kevin Warsh said that the move was because "inflation is too high and has been for too long", adding that it was a "sober" and "responsible decision.”

Warsh signaled the rate could be increased further in a bid to slow rising prices. Money markets priced in about a 49.8% chance of a Fed hike in October, according to the CME FedWatch tool.

“That’s hawkish. If the chair thinks policy is accommodative, then you’ve got more work to do,” said Michael Gapen, chief US economist for Morgan Stanley.

Nonetheless, Trump demanded the US central bank slash interest rates to 1% “or less.” “We are ‘carrying’ almost every country in the World, and that cannot go on any longer,” Trump wrote in a Truth Social post.

The Reserve Bank of Australia (RBA) has held the Official Cash Rate (OCR) at 4.35%, following three consecutive hikes earlier this year. Markets are now pricing in nearly 76% odds that the Australian central bank will raise the Official Cash Rate (OCR) to 4.60% at the next RBA Board meeting, according to RBA Rate Tracker.

The International Monetary Fund (IMF) stated that the RBA should stand ready to hike interest rates given inflation risks remain tilted to the upside, adding that the government could also support disinflation by reining in spending.

Aussie downside bias persists as UOB keeps focus on 0.7100 support

Strategists at UOB Group maintain their cautious medium-term stance on AUD/USD, reiterating their “1-3 weeks view” that, “while further weakness is not ruled out, short-term conditions are oversold, and AUD must close below 0.7100 before a move to 0.7050 can be expected.” They add that the “likelihood of AUD closing below 0.7100 will remain intact as long as AUD holds below the ‘strong resistance’ at 0.7175,” with both levels unchanged from their prior assessment.

Technical Analysis: AUD/USD maintains a negative tone in the near term

In the daily chart, AUD/USD holds a bearish near-term bias as price remains beneath the 20-day Bollinger Bands’ middle line, while the 100-day simple moving average (SMA) offers initial underlying support just below the market. Momentum has cooled, with the 14-day Relative Strength Index (RSI) slipping toward the low-40s, which hints at waning bullish pressure rather than outright oversold conditions.

On the topside, immediate resistance is seen at the lower Bollinger band near 0.7095, followed by the Bollinger SMA center around 0.7166 and the upper band close to 0.7240, forming a broad cap above current levels. On the downside, the 100-day SMA at 0.7080 marks the first support level; a sustained break beneath this floor would likely open the path toward lower daily closes and reinforce the prevailing bearish tone.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Australian Dollar FAQs

What key factors drive the Australian Dollar?

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.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

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.

How does the health of the Chinese Economy impact the Australian Dollar?

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.

How does the price of Iron Ore impact the Australian Dollar?

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.

How does the Trade Balance impact the Australian Dollar?

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

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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