AUD/USD steadies near 0.6950 as geopolitics drive USD demand
- AUD/USD trades near 0.6950 after Wednesday’s 0.68% drop on broad Dollar strength.
- Australian CPI eased to 3.7%, while trimmed mean held at 3.3%, still above target.
- Middle East risks and rising energy prices keep inflation concerns and volatility elevated.
The Australian Dollar begins Thursday's session with minuscule gains of 0.04%, after posting losses of 0.68% on Wednesday, courtesy of broad US Dollar strength, despite improved risk appetite. At the time of writing, the AUD/USD trades at 0.6950.
Aussie pares losses after softer Australian inflation, but broad US Dollar strength keeps upside limited
Geopolitics are driving the financial markets' narrative, as each new headline keeps investors uneasy amid information about the US-Iran war, shifting the markets' mood. Growing speculation about the start of US-Iran talks to end the war in the Middle East pushed US equities, the US Dollar and Gold prices higher, while US Treasury bond yields tumbled.
On Wednesday, Australian inflation was mostly unchanged in February, a relief for Aussie households. The Consumer Price Index (CPI) slowed from 3.8% to 3.7% YoY, though it remained above the Reserve Bank of Australia's 3% target.
Trimmed mean CPI was 3.3% YoY, unchanged from January's downward revised reading from 3.4% to 3.3%.
It's worth noting that the data were collected before the Middle East conflict, which has sent global energy prices soaring, heightening worldwide inflationary risks.
Recently, the RBA Assistant Governor Christopher Kent said that the Iran war has tightened financial conditions, adding that the supply shock posed a risk to inflation. He added that "Central banks cannot change that. But they can ensure that the initial rise in prices does not lead to a rise in longer term inflationary expectations and extended inflationary pressures."
Last week, the RBA raised interest rates to 4.1% on a narrow vote split, which, according to RBA's Governor Bullock, was due not to the policy stance but to the timing.
In the US, Fed Governor Stephen Miran remained dovish, saying that the Fed's inflation mandate "has not been so problematic," while adding that the job market has been in an "extended streak of getting weaker." Miran insisted that the Fed should cut towards neutral this year.
AUD/USD Price Forecast: Technical Outlook
In the daily chart, AUD/USD trades at 0.6942. The near-term bias turns mildly bearish after the pair slipped below the cluster of rising closes supported by the latest uptrend line from 0.6897 and retreated from the recent 0.7150 area. Price now trades under that broken support region near 0.7000, with the spot also slipping beneath the rising simple moving averages that had been guiding the advance, indicating fading upside control. The RSI has rolled down toward the low-40s from the 60 area, confirming a loss of bullish momentum and pointing to building downside pressure rather than an immediate oversold condition.
Initial resistance emerges at the former support band around 0.7000, where the broken short-term trend line and nearby moving averages now cap rebounds, followed by the recent swing highs near 0.7080 and then 0.7120. On the downside, immediate support is seen around 0.6900, just above the broader ascending trend structure from 0.6673, with a break exposing the next bearish target near 0.6800. A daily close back above 0.7000 would ease the current downside bias, while failure to reclaim that level keeps focus on lower supports as sellers press the correction.
(The technical analysis of this story was written with the help 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). 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.
Nothing in this material constitutes investment advice, personal recommendation, investment research, an offer, or a solicitation to buy or sell any financial instrument. The content has been prepared without consideration of your individual investment objectives, financial situation, or needs, and should not be treated as such.
Past performance is not a reliable indicator of future performance and/or results. Forward-looking scenarios or forecasts are not a guarantee of future performance. Actual results may differ materially from those anticipated.
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