- AUD/USD advanced to new yearly peaks around 0.6560 on Thursday.
- The US Dollar extended its bearish leg to multi-year lows.
- Fears over the Fed’s independence weighed on the Greenback.
The Australian Dollar (AUD) traded in a positive fashion against its US counterpart on Thursday, prompting AUD/USD to reach new tops around 0.6560 following four consecutive daily upticks.
The recent convincing break above its 200-day simple moving average (SMA) near 0.6420 has bolstered hopes of further recovery in the near term.
Domestic inflation and activity
Australia’s monthly CPI indicator eased to 2.1% in May from 2.4% in April, remaining comfortably within the Reserve Bank of Australia’s (RBA) 2%–3% target range.
In addition, early-June PMI readings likewise pointed to continued expansion, with manufacturing at 51.0 and services at 51.3.
China’s mixed signals
China’s latest figures provided mixed signals for Australia’s largest trading partner.
Indeed, Industrial Production, Retail Sales and service-sector growth all picked up in May, keeping annual expansion above 5%. Yet concerns over a faltering property market and the withdrawal of stimulus measures cast a shadow over momentum in late 2025.
Late last week, the PBoC held its 1-Year and 5-Year Loan Prime Rates (LPR) at 3.00% and 3.50%, respectively, and injected CNY 300 billion into the banking system via a one-year medium-term lending facility (MLF) on 25 June.
Monetary policy divergence
The RBA cut its cash rate by 25 basis points to 3.85% in late May, signalling a gradual descent to 3.20% by 2027 and rejecting a larger “insurance” cut despite heightened global trade risks.
In contrast, the Federal Reserve (Fed) decided to keep rates unchanged while also reiterating its expectations for two half-point reductions by the end of the year. Fed chair Jerome Powell warned that US goods inflation could pick up this summer as tariffs feed through to consumer prices.
Speculative positioning
Speculators have pared back their bearish wagers on the Aussie, with net short positions falling to two-week lows of around 90.5K contracts as of June 17, according to the CFTC. Open interest has also retreated, reaching its lowest level in nearly two years.
Technical landscape
The next resistance for AUD/USD is located at the 2025 peak of 0.6558 (June 26). Further up, the pair could challenge the November 2024 peak at 0.6687 (November 7) and the 2024 high at 0.6942, all before the psychological 0.7000 barrier.
On the other hand, the 200-day SMA at 0.6423 should offer initial support prior to the June valley of 0.6372 (June 23) and the May low of 0.6356 (May 12). A deeper decline could put the 0.6000 milestone back into focus, ahead of the 2025 base at 0.5913 (April 9).
Momentum indicators remain tilted to the bullish side: the Relative Strength Index (RSI) surpassed the 59 level, paving the way to further upside impulse, while an Average Directional Index (ADX) around 21 signals a moderately strong trend.
AUD/USD daily chart
Near-term forecast
For now, the Australian Dollar remains in a consolidation period. A large divergence from this trend in either direction would need a strong, exogenous catalyst: A possible game changer coming from China looks to be a distant possibility, while large and long-term improvements in US trade policy are improbable in the foreseeable future.
That said, it is probable that the present rangebound mood will continue in the near future.
Back to monetary policy: No substantial effect is predicted from the RBA, as markets have begun to anticipate another rate decrease later this year, albeit a strong lowering tendency is not envisaged at this time.
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.
