During Friday’s American trading hours, the AUD/USD pair took a nosedive, heading toward the 0.6050 mark in one of the sharpest intraday declines observed recently. This plunge is driven primarily by concerns over global economic slowdown and inflation heightened by Trump’s new tariffs, with Fed Chair Jerome Powell cautioning about drastic economic repercussions. On the technical front, indicators are displaying strong bearish momentum, with prices experiencing heavy resistance near 0.6200 as the pair dips to multi-year lows.
Friday’s trading saw the AUD/USD slip below a critical psychological threshold, hitting the 0.6050 range and reaching its lowest point in five years. This significant drop follows the release of a stronger-than-expected US Nonfarm Payrolls (NFP) report, enhancing the US Dollar’s appeal. However, the primary trigger for the Australian Dollar’s fall has been President Trump’s latest tariff announcement, which has sparked fears over global economic growth. This situation might compel the Reserve Bank of Australia (RBA) to consider substantial rate cuts this year. Technically, the pair signals powerful bearish momentum as the Relative Strength Index (RSI) dives deeper into oversold territory and the MACD displays a fresh red bar.
The Australian Dollar (AUD) has faced intense selling pressure, slipping below the 0.6050 benchmark as investors quickly adjusted their expectations regarding the RBA’s interest rate decisions following Trump’s aggressive tariff measures. In a speech at a business journalism event, Federal Reserve Chair Powell acknowledged that the extensive tariff initiatives could impact inflation and economic growth more significantly than previously thought. Powell underlined the Federal Reserve’s adaptability, mentioning that despite the gradual cooling of inflation, the tariffs’ true economic impact remains uncertain, advocating a cautious approach.
In March, despite robust US job data—with payrolls exceeding projections and a slight uptick in unemployment—Powell underscored deteriorating business confidence tied to trade policies. Markets anticipate that the RBA could implement consecutive rate cuts in upcoming meetings, with some analysts predicting a 50 basis point reduction by May. Meanwhile, China’s retaliatory stance further complicates the situation for the Aussie, considering Australia’s export-driven economy’s heavy reliance on China. The US Dollar, buoyed by the NFP report and Powell’s comments, strengthened further against high-beta currencies like the AUD.
Technically speaking, the dramatic market action left the AUD/USD in deep bearish territory on Friday, as the price dropped close to the lower bounds of its daily range and violated critical multi-year support levels. The MACD continues printing red bars, reinforcing the downside, while the RSI has plummeted to 27, indicating extremely oversold conditions. Despite the Stochastic oscillator’s neutrality, persistent selling is affirmed by the Bear/Bull Power indicator flashing red, alongside a sharp divergence among moving averages. Short and long-term moving averages—the 10-day EMA, 20-day, 100-day, and 200-day SMAs—all point downwards, highlighting the overriding downtrend.
Below are some Frequently Asked Questions related to the Australian Dollar (AUD):
One of the primary influences on the Australian Dollar (AUD) is the interest rate levels set by the Reserve Bank of Australia (RBA). Given that Australia is rich in resources, another crucial factor is the price of its largest export, iron ore. China’s economic health, as Australia’s main trading partner, also plays a significant role, alongside inflation, growth rate, and trade balance in Australia. Market sentiment, where investors shift between risk-on and risk-off strategies, affects the AUD too. A risk-on environment is generally beneficial for the AUD.
The RBA influences the AUD by setting the interbank lending interest rates, steering the broader economic interest rates. The RBA aims for a stable 2-3% inflation rate, adjusting rates to maintain this goal. High interest rates compared to global peers can bolster the AUD, while lower ones weaken it. The RBA might also employ quantitative easing or tightening to adjust credit conditions, which are respectively AUD-negative and AUD-positive measures.
China, being Australia’s largest trading ally, significantly impacts the AUD value. When China’s economy thrives, it imports more materials from Australia, boosting AUD demand and value. Conversely, if China’s growth slows, the AUD often declines. Hence, surprises in China’s growth metrics can directly influence the AUD.
Iron ore is a vital Australian export, with China as the main buyer, as reported in 2021 figures showing it accounts for $118 billion annually. Therefore, iron ore prices can drive the AUD’s value. Typically, when iron ore prices rise, so does the AUD, as demand for the currency increases. Conversely, falling prices adverse the AUD. Higher iron ore prices also enhance Australia’s trade balance, strengthening the AUD.
Finally, another currency influencer for the AUD is the trade balance, the financial gap between exports and imports. Outputting sought-after exports appreciates Australia’s currency due to increased foreign demand, while a net negative trade balance has the opposite effect.
