Australian Dollar pulls back as US Dollar attempts recovery from multi-year lows

AUD/USD retreats toward the 0.6280 zone during Monday’s American session after peaking near 0.6340.
Sentiment on the US Dollar seesaws amid fresh trade headlines and recession commentary.
Key resistance is noted around 0.6320 and 0.6410; support lies near 0.6290 and 0.6280.

Patricio Martín FXStreet

The Australian Dollar gave up its earlier strength on Monday, falling from session highs near 0.6340 to trade closer to the 0.6280 area during North American hours. The reversal came as the US Dollar Index (DXY) attempted a modest bounce off its three-year low near the 99.00 mark. This shift in tone followed remarks from US officials suggesting reduced recession risks and progress on trade negotiations with Europe, though concerns remain over the unresolved US-China tariff fight.

Daily digest market movers: USD sentiment fluctuates on mixed economic signals

Kevin Hassett from the US National Economic Council dismissed fears of a recession, boosting the Greenback's tone temporarily.
Sector-specific US tariffs are still likely, especially targeting electronics and chips, despite a general 90-day tariff pause.
Trade talks with the EU show progress, helping limit broader market fears of a full-scale global tariff escalation.
The University of Michigan’s Consumer Sentiment Index posted a steep drop, suggesting households are concerned about rising costs.
Treasury yields remain under pressure, reflecting continued bond demand amid global growth concerns.
The Australian Dollar remains vulnerable due to its export reliance on China and the escalating trade tensions.
Investors await key US Retail Sales on Wednesday and Australia’s jobs data on Thursday to provide directional cues.

Technical analysis

Technically, AUD/USD shows signs of near-term bullish momentum despite Monday’s pullback. The Relative Strength Index (RSI) sits near 55, reflecting a neutral-to-positive tone, while the Moving Average Convergence Divergece (MACD) continues to print a green bar and issues a fresh buy signal. The pair is currently trading in the middle of its daily range between 0.6274 and 0.6342, lacking a decisive breakout.

Shorter-term moving averages such as the 10-day EMA and 20-day SMA support the upside, while the 100-day SMA also aligns with bullish pressure. However, the 200-day SMA at 0.6483 remains a ceiling that could limit further rallies.

Support levels are identified at 0.6291, 0.6286 and 0.6281. Resistance sits at 0.6324, followed by 0.6413 and the longer-term cap at 0.6483. The technical outlook leans bullish in the short run, but a clear break above 0.6340 is needed to confirm continuation.

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

Patricio Martín

FXStreet

Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.

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