Australian Dollar posts modest gains above 0.7150 on US Treasury buyback worries

AUD/USD gains ground to near 0.7175 in Monday’s early Asian session.
Treasury buyback worries weigh on the US Dollar.
Iranian official called the threat of new US economic sanctions ‘desperate.’

Lallalit Srijandorn FXStreet

The AUD/USD pair trades with mild gains around 0.7175 during the early Asian session on Monday. The US Dollar (USD) edges lower against the Australian Dollar (AUD) amid concerns over the US Treasury's plan to expand buybacks of longer-dated government debt. The Reserve Bank of Australia (RBA) Meeting Minutes will be released later on Tuesday.

US Treasury Secretary Scott Bessent said on Thursday that the Treasury could increase bond buybacks beyond $4 billion, partly to signal that current yields do not reflect underlying economic fundamentals. This development came after the department surprised markets by pledging to at least double the size of its buybacks of longer-dated debt in an effort to rein in bond yields.

"Bessent’s efforts to suppress U.S. yields haven't done much for U.S. yields, but it's undermined the dollar," said Marc Chandler, chief market strategist at Bannockburn Global Forex. "The market is pushing back,” Chandler added.

However, rising tensions in the Middle East could boost safe-haven flows, helping limit the USD’s losses. Iran's Foreign Minister Abbas Araghchi dismissed the threat of new US sanctions as a sign of desperation on Sunday and said the expected new measures would fail to defeat Tehran. Meanwhile, Iran’s Security Chief Mohsen Rezaei threatened “earthquake-like” retaliation should US President Donald Trump take any further action.

Australia labour market surprise adds to focus on July data

DBS points out that Australia’s latest labour market report delivered a negative surprise, with the economy recording "15.8k job losses in Jul, in contrast to analysts’ expectations for a 12k jobs increase." The bank highlights this unexpected deterioration in employment as an additional factor that will shape market scrutiny of upcoming Australia data, including the July CPI release and its implications for RBA expectations.

Technical Analysis: AUD/USD keeps a bullish vibe above the 100-day SMA

In the daily chart, AUD/USD extends its advance above the 20-period Bollinger middle band and the 100-day moving average (MA), which now underpin a bullish near-term bias. Price is pressing against the upper Bollinger band, highlighting a stretched move, while the Relative Strength Index (14) hovering around 70.0 suggests overbought conditions that could slow further upside even as the broader tone remains constructive.

On the downside, initial support appears at the 100-day MA near 0.7072, reinforced by the 20-period Bollinger middle band clustered just below at 0.7065, with a deeper floor at the lower Bollinger band around 0.6955. On the topside, immediate resistance is defined by the upper Bollinger band at 0.7175, and a sustained break above this barrier would open the door to further gains, while failure to clear it may trigger a corrective pullback toward the mentioned support zone.

(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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