Australian Dollar supported by tariff hopes, upbeat China and domestic data
- AUD/USD rose toward the 0.6300 area, trading near 0.6270 during Monday’s American session.
- Sentiment improved after stronger Australian PMI data and speculation of softer US tariffs.
- Upside remains capped by a firm US Dollar and resistance at the 20-day moving average.
The AUD/USD pair edged higher on Monday, with the pair moving closer to the 0.6300 handle after bouncing off last week’s lows around 0.6260. The recovery came during the American session amid increased optimism over a potential moderation in upcoming US tariff policy, supportive Chinese measures, and a solid set of Australian PMI data.
Despite a still-firm US Dollar, AUD/USD managed to maintain mild gains, although technical indicators point to capped upside, particularly with the pair held below its 20-day Simple Moving Average (SMA) and momentum readings still in negative territory.
Daily digest market movers: Australian Dollar finds a foothold as risk sentiment improves
- The Australian Dollar extended gains on Monday, rebounding after four consecutive sessions of losses. The upside was supported by optimism that the US may introduce more moderate reciprocal tariffs on April 2, easing market fears of an outright trade war escalation.
- Australia’s March preliminary PMIs surprised to the upside with the manufacturing component rising to a 29-month high of 52.6 and the services print hitting a two-month peak at 51.2. The Composite index climbed to 51.3, its strongest reading since August. The continued increase in private sector employment also suggested that February’s dismal labor market report may not reflect a sustained downturn.
- In China, new policy support measures aimed at boosting household income and domestic consumption added to risk appetite. The improved Chinese outlook bodes well for the Aussie, given Australia’s reliance on commodity exports to its largest trading partner.
- Meanwhile, the US Dollar remained steady following Friday’s PMI reports. While the S&P Global Composite PMI rose, the Manufacturing index unexpectedly declined. Additionally, Fed officials, including Atlanta Fed President Raphael Bostic, emphasized persistent inflation uncertainty, noting that rate cuts may come later than previously expected.
- On the monetary policy front, markets continue to price in a 25-basis-point Reserve Bank of Australia cut by July, with growing odds for a move as early as May. The Reserve Bank of Australia’s next CPI indicator on March 26 will be key for gauging near-term action.
AUD/USD technical analysis: Capped recovery as bearish bias persists
The pair’s intraday advance faced resistance near the 0.6270 area during Monday’s American session, remaining below the 20-day SMA, which continues to act as an immediate ceiling. The Moving Average Convergence Divergence (MACD) indicator printed a new red bar, while the Relative Strength Index (RSI) showed a modest rise to 46, still stuck in negative territory. These signals underscore that while there is some recovery, upside momentum remains limited.
In terms of levels, resistance is seen near 0.6300, which aligns with both a psychological barrier and the aforementioned moving average. If broken, the next resistance zone stands around 0.6340. On the downside, support lies near 0.6250, followed by the March lows around 0.6225.
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.