- AUD/USD encountered fresh supply on Friday as the US dollar appeared to be buying.
- An overnight failure and technical setup near the 100-day SMA favors bearish traders.
- Sustained strength and acceptance above the 0.6700 mark negates the negativity bias.
AUD/USD has failed to capitalize on yesterday's strong rally to around 0.6700, a two-week high, and has retreated from near the resistance of the 100-day simple moving average (SMA). Spot prices extended their intraday decline into early European trading on Friday, falling to a range of 0.6625-0.6620, or a new daily low, amid a moderate U.S. dollar strength.
Expectations that President Trump's policies will boost economic growth, push up inflation and limit the Federal Reserve's ability to aggressively cut interest rates cause the US dollar to stall its retracement decline from the previous day's four-month high. This is one of the reasons why. This turned out to be an important factor exerting downward pressure on the AUD/USD pair. Meanwhile, the AUD/USD bull market appears unaffected by the fact that China's National People's Congress Standing Committee approved a plan to raise the local debt ceiling. Even the Reserve Bank of Australia's (RBA) hawkish stance earlier this week has failed to help Australia.
From a technical perspective, acceptance below the all-important 200-day SMA suggests that short covering gains from Wednesday's lowest levels since August 8th have lost momentum. I'm going to do it. Given that the oscillator on the daily chart is recovering but still remains in negative territory, a subsequent decline could push the AUD/USD pair to the 0.6600 mark on its way to the 0.6555-0.6550 support zone. There is sex. The downward trajectory could extend further towards the 0.6515-0.6510 area or multi-month lows before the spot price eventually falls to the next relevant support around the 0.6465-0.6460 area.
On the contrary, bulls need to wait for a sustained breakout above the 100-day SMA hurdle, which is currently anchored just below the 0.6700 mark, before making new bets. This is followed by a 50-day SMA around the 0.6715-0.6820 area, and the AUD/USD pair could rally above the intermediate resistance at 0.6750-0.6755 and aim for a recovery round figure at 0.6800. A subsequent rally would signal that the recent sell-off has run its course and short-term bias shifts in favor of bullish traders.
AUD/USD daily chart
Australian Dollar Frequently Asked Questions
One of the most important factors for the Australian dollar (AUD) is the interest rate level set by the Reserve Bank of Australia (RBA). Australia is a resource-rich country, so another important factor is the price of its largest export, iron ore, which is Australia's largest trading partner, as well as its inflation, growth rate and trade. The health of China's economy is also a factor. balance. Market sentiment is also a factor, with investors taking on riskier assets (risk-on) or seeking safer assets (risk-off), with risk-on being positive for the Australian dollar.
The Reserve Bank of Australia (RBA) influences the Australian dollar (AUD) by setting the level of interest rates at which 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 adjusting interest rates up and down. The Australian dollar is supported by relatively high interest rates compared to other major central banks, and conversely by relatively low interest rates. The RBA can also use quantitative easing and tightening to influence credit conditions, with 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 significant impact on the value of the Australian dollar (AUD). When China's economy does well, China buys more raw materials, goods and services from Australia, increasing demand for the Australian dollar and boosting its value. The opposite is true if China's economy is not growing as fast as expected. Therefore, positive or negative surprises in China's growth data often directly impact the Australian dollar and its pairs.
Iron ore is Australia's largest export, accounting for $118 billion annually, according to 2021 data, with China the main destination. Therefore, iron ore prices could be a driver for the Australian dollar. Generally, when the price of iron ore increases, the Australian dollar also appreciates because aggregate demand for the currency increases. The opposite is true if the price of iron ore falls. Higher iron ore prices tend to increase the likelihood of Australia's trade balance being positive, which is also positive for the Australian dollar.
The balance of trade is the difference between what a country earns from exports and what it pays for imports, and is another factor that can affect the value of the Australian dollar. If Australia produces a highly sought-after export, the country's currency will be deducted from just the surplus demand generated from foreign buyers seeking to buy that export, compared to the amount spent on purchasing the import. value increases. Therefore, a positive net trade balance will cause the Australian dollar to appreciate, while a negative trade balance will have the opposite effect.
