The Australian dollar starts Thursday’s session with a modest gain of 0.04%, after Wednesday’s loss of 0.68%, thanks to robust strength in the US dollar despite increased risk appetite. At the time of writing, the AUD/USD rate is 0.6950.
The Australian is recovering from lower inflation in Australia, but broad-based US dollar strength remains restricted
Geopolitics shapes the narrative of financial markets as each novel headline worries investors amid news of the U.S.-Iran war, changing market sentiment. Growing speculation about the start of U.S.-Iran talks to end the war in the Middle East has pushed up the prices of U.S. stocks, the U.S. dollar and gold, while U.S. Treasury yields have fallen.
Australian February inflation was largely unchanged on Wednesday, a relief for Australian households. The Consumer Price Index (CPI) fell from 3.8% to 3.7% y/y, although it remained above the Reserve Bank of Australia’s target of 3%.
The average trimmed CPI was 3.3% y/y, unchanged from January’s downwardly revised reading from 3.4% to 3.3%.
It is worth noting that the data was collected before the conflict in the Middle East, which sent global energy prices skyrocketing, increasing global inflation risks.
Recently, RBA deputy governor Christopher Kent said the war in Iran had tightened financial conditions, adding that the supply shock posed risks to inflation. He added that “Central banks cannot change this. However, they can ensure that the initial price increase does not lead to higher long-term inflation expectations and extended inflation pressures.”
Last week, the RBA raised interest rates to 4.1% with a narrow vote, which RBA Governor Bullock said was not due to policy stance but timing.
In the United States, Fed Governor Stephen Miran remained dovish, stating that the Fed’s inflation mandate “hasn’t been that problematic,” while adding that the labor market has been in a “long streak of weakness.” Miran urged the Fed to make cuts in a neutral direction this year.
AUD/USD Price Forecast: Technical Outlook
On the daily chart, the AUD/USD rate is 0.6942. The short-term bias turned slightly bearish as the pair moved below a cluster of rising closes supported by the recent uptrend line from 0.6897 and retreated from the recent 0.7150 area. The price is currently trading below the broken support area near 0.7000, with the spot price also falling below the rising straightforward moving averages that led the rally, indicating the upside control is fading. The RSI dropped towards the low 40s from the 60 area, confirming the loss of bullish momentum and pointing to mounting downward pressure rather than an immediate oversold condition.
Initial resistance appears at the previous support band near 0.7000, where a broken short-term trend line and nearby moving averages are now limiting the rebound, followed by recent highs near 0.7080 and then 0.7120. On the other hand, immediate support is seen around 0.6900, just above the broader uptrend structure from 0.6673, with a break exposing another bearish target near 0.6800. A daily close above 0.7000 would ease the current downside bias, while a failure to regain this level results in a focus on lower supports as sellers press for a correction.
(The technical analysis for this story was written with the facilitate of an AI tool.)
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). 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 operate 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 speedy 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.
