AUD/USD deepens losses for the second session in a row, reaching a level of around 0.7010 during Asian hours on Wednesday. The pair remains under pressure following the release of Australian gross domestic product (GDP) data. Attention will now turn to the U.S. ISM Purchasing Managers’ Index (PMI), which will be released later in the day.
Australian Bureau of Statistics (ABS) data showed on Wednesday that the economy grew 0.8% quarter-on-quarter in the fourth quarter of 2025, accelerating from 0.5% in the third quarter and beating market expectations of 0.6%. On an annualized basis, fourth-quarter GDP rose 2.6%, up from 2.1% in the previous quarter and above the consensus forecast of 2.2%.
Final data shows the S&P Global Australia Services PMI fell to 52.8 in February from 56.3 in January, signaling continued, albeit slower, expansion in the services business. Composite PMI fell to 52.4 from 55.7. While this was the 17th consecutive month of private sector output growth, the pace of growth has slowed since the beginning of the year.
The AUD/USD pair also weakened on renewed demand for the US dollar (USD), supported by fading expectations of imminent interest rate cuts by the Federal Reserve (Fed). Rising oil prices, fueled by escalating tensions in the Middle East, have increased concerns about inflation, prompting markets to withdraw assumptions about short-term monetary easing. Investors largely expect the U.S. central bank to leave interest rates unchanged through the summer, despite U.S. President Donald Trump’s calls to lower borrowing costs.
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 secure 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 employ 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 swift 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.
