Australian Dollar rebounds from two-year lows as US Dollar rally pauses
- Aussie recovers from 0.6200 lows, rising to 0.6260.
- Pause in hawkish Fed cut-led USD uptrend aids Aussie.
- China’s fragile recovery caps Aussie’s rebound.
The Australian Dollar rebounds from two-year lows of around 0.6200, buoyed by a pause in the US Dollar’s hawkish Fed cut-inspired uptrend. Although the Federal Reserve’s cautious tone on further cuts initially lifted the Greenback, the Aussie is finding relief as investors reassess growth prospects.
However, lingering worries about China’s sluggish recovery and possible higher US tariffs could limit the currency’s recovery.
Daily digest market movers: Aussie sees mild rebound after Fed signals fewer rate cuts
- The Federal Reserve’s new dot plot showed fewer interest rate cuts for next year, citing inflation uncertainty and robust economic activity.
- Fed Chair Jerome Powell highlighted proximity to the neutral rate and emphasized caution in future policy moves.
- Despite lingering headwinds, the Aussie’s current recovery attempts remain tempered by fears of a less accommodative global environment.
- In addition, the Reserve Bank of Australia is expected to cut rates sooner rather than later and as markets start to place dovish bets, the Aussie’s downside is wide open.
AUD/USD technical outlook: Aussie bounces as indicators exit deep oversold conditions
The Relative Strength Index (RSI) hovers around 31, rising sharply from near-oversold territory, while the Moving Average Convergence Divergence (MACD) histogram prints rising red bars, reflecting a mild rebound in momentum. Although these signals indicate a tentative relief from oversold levels, persistent macroeconomic challenges particularly China’s growth worries and the Fed’s cautious stance may still cap significant upside potential.
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.