The AUD/USD pair has been trading in a tight band below the 0.7100 level throughout the Asian session as investors move to the sidelines ahead of Friday’s release of the latest US consumer inflation data. Nevertheless, spot prices remain near three-year highs hit on Thursday and appear poised to post gains for a fourth straight week.
From a technical perspective, the overnight break of the two-week trading range and 100-hour elementary moving average (SMA) supports an extension of the corrective slide. The Moving Average Convergence Divergence (MACD) remains in negative territory near the zero line and is trending upwards, with a shrinking histogram suggesting easing bear pressure. The Relative Strength Index (RSI) is printing 39, below the midline of 50 and not oversold, consistent with a subdued sentiment.
The rising 100-hour SMA at 0.7092 caps near-term upside. The deviation will improve in the event of a sustained break above the above-mentioned hurdle, which could open up room for recovery as momentum stabilizes. That said, failure to recover this currency would deter rallies and keep the backdrop favorable to sellers. A move of the MACD to positive territory would strengthen the bullish scenario, and a rebound of the RSI above 50 would confirm improved dynamics.
In the meantime, investors may want to refrain from making aggressive directional bets and opt to wait for the U.S. Consumer Price Index (CPI) report. Key data could provide more clues about the US Federal Reserve’s (Fed) interest rate cut path, which in turn will impact USD demand and provide novel momentum for the AUD/USD pair. That said, the hawkish stance of the Reserve Bank of Australia (RBA) may still work to the Australian’s advantage.
(The technical analysis for this story was written with the aid of an AI tool.)
AUD/USD 1-hour chart
Australian Dollar FAQs
One of the most critical factors for the Australian dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). As Australia is a resource-rich country, another key factor influencing price is the price of its largest export, iron ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as Australia’s inflation, its dynamics and its trade balance. Market sentiment – whether investors take on riskier assets (risk-on) or look for sheltered havens (risk-off) – also matters, with positive risk for the AUD.
The Reserve Bank of Australia (RBA) influences the Australian dollar (AUD) by setting the interest rates that Australian banks can lend to each other. This affects the level of interest rates throughout the economy. The RBA’s main goal is to maintain a stable inflation rate of 2-3% by raising or lowering interest rates. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low ones. The RBA may also utilize quantitative easing and tightening to influence lending conditions, the former being AUD negative and the latter AUD positive.
China is Australia’s largest trading partner, so the health of the Chinese economy has a major impact on the value of the Australian dollar (AUD). When the Chinese economy does well, it buys more raw materials, goods and services from Australia, increasing demand for the AUD and increasing its value. The opposite is the case when the Chinese economy is not growing as brisk 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, worth $118 billion a year in 2021 figures, with China being the main buyer. The price of iron ore can therefore influence the Australian dollar. Generally speaking, if the price of iron ore increases, the AUD also increases, as aggregate demand for the currency increases. The opposite is true when 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 for the AUD.
The trade balance, or the difference between what a country earns from exports and what it pays for imports, is another factor that can affect the value of the Australian dollar. If Australia produces a highly sought after export, then its currency will only appreciate in value as a result of the excess demand created by foreign buyers wanting to buy its exports compared to spending on import purchases. Therefore, a positive net trade balance strengthens the AUD, and the effect is opposite if the trade balance is negative.
