On Wednesday, the Australian Dollar (AUD) held its ground, showing little movement as traders adopted a cautious approach ahead of the Federal Reserve’s interest rate decision. The AUD/USD pair remained stable despite the US Dollar (USD) staying firm, buoyed by stable US yields in the lead – up to the Fed’s policy announcement later in the day. With persistent inflation concerns and elevated economic uncertainty, market participants widely expect the Fed to keep interest rates unchanged.
Domestic and Global Economic Signals
Australian Economic Resilience
Australia’s Westpac Leading Index demonstrated growth, rising to 0.8% in February from 0.6% in January. This increase indicated continued domestic resilience, even as currency and commodity tailwinds weakened. Although the impact of tariff shocks was starting to be felt, domestically driven factors were providing substantial support to the economy.
Trade Policy Criticism
Australia’s Treasurer, Jim Chalmers, made waves on Tuesday when he criticized the Trump administration’s trade policies during a speech. Chalmers labeled these policies as “self – defeating and self – sabotaging,” firmly rejecting a “race to the bottom” on tariffs. He also condemned the US decision to exclude Australia from steel and aluminum tariff exemptions, calling it “disappointing, unnecessary, senseless, and wrong.” His remarks emphasized Australia’s focus on building economic resilience rather than engaging in retaliatory measures.
RBA’s Cautious Stance
Reserve Bank of Australia (RBA) Assistant Governor (Economic) Sarah Hunter, on Monday, reiterated the central bank’s cautious approach towards rate cuts. The RBA’s February statement had already signaled a more conservative stance than what the market had anticipated, with a strong emphasis on closely monitoring US policy decisions and their potential implications for Australia’s inflation outlook.
Global Developments Impacting Currencies
US Dollar’s Mixed Fortunes
The US Dollar Index (DXY), which measures the USD against six major currencies, was trading in positive territory near 103.40 at the time of reporting. However, the Greenback faced headwinds. Weak US economic data and renewed tariff threats from President Donald Trump added to investor uncertainty. Market watchers were intently focused on the Federal Reserve’s updated economic projections, hoping to glean insights into the future direction of US interest rates. Any hawkish signals from Fed policymakers could potentially bolster the USD against its counterparts.
US Economic Data Releases
The US Census Bureau’s report on Monday showed that Retail Sales in February increased by 0.2% month – over – month, falling short of the market’s expectation of 0.7%. This followed a revised decline of -1.2% in January (initially reported as -0.9%). On an annual basis, Retail Sales grew by 3.1%, down from the revised 3.9% in January (previously 4.2%). These figures added to the overall sense of economic uncertainty in the US.
International Diplomacy and Tariff Threats
On Tuesday, US President Donald Trump and Russian President Vladimir Putin agreed to an immediate pause in strikes targeting energy infrastructure in the Ukraine war. Trump announced on Truth Social that both sides had committed to a 30 – day halt on such attacks, a statement echoed by the Kremlin. However, Putin declined to back a broader month – long ceasefire negotiated by Trump’s team with Ukrainian officials in Saudi Arabia, indicating that tensions persisted despite the temporary agreement on energy targets.
Trump also reaffirmed his plans to impose reciprocal and sectoral tariffs on April 2. He confirmed that there would be no exemptions for steel and aluminum and mentioned that reciprocal tariffs on specific countries would be implemented alongside auto duties. In response, Australian Prime Minister Anthony Albanese stated that Australia would not impose reciprocal tariffs on the US, highlighting that such retaliatory measures would only increase costs for Australian consumers and stoke inflation.
Chinese Economic Stimulus
Over the weekend, China introduced a special action plan aimed at boosting consumption and improving market sentiment across the region. The plan included measures such as wage increases, incentives for household spending, and efforts to stabilize stock and real estate markets. Given China’s status as Australia’s key trading partner, any positive developments from this stimulus plan could further support the AUD. Chinese economic data also showed signs of growth, with retail sales increasing by 4.0% year – over – year in January – February, up from December’s 3.7% increase. Industrial production rose 5.9% YoY during the same period, exceeding the 5.3% forecast but slightly lower than the previous reading of 6.2%.
AUD/USD Technical Outlook
Resistance and Support Levels
The AUD/USD pair was trading around 0.6360 on Wednesday, maintaining its bullish trend as it continued to climb within the ascending channel on the daily chart. The 14 – day Relative Strength Index (RSI) remained above 50, suggesting continued positive momentum.
Looking ahead, the pair may attempt to retest its three – month high of 0.6408, last reached on February 21. A breakout above this level could strengthen the bullish sentiment, potentially pushing the pair towards the upper boundary of the ascending channel near 0.6490.
On the downside, key support levels were identified at the nine – day Exponential Moving Average (EMA) of 0.6334, which aligned with the lower boundary of the ascending channel. Further support was found at the 50 – day EMA at 0.6311. A decisive break below this critical zone could weaken the bullish outlook, exposing the AUD/USD pair to potential downward pressure towards the six – week low of 0.6187, recorded on March 5.
AUD Performance Against Major Currencies
The table below shows the percentage change of the Australian Dollar (AUD) against major currencies on the day. The AUD was the strongest against the Japanese Yen.
Key Factors Influencing the Australian Dollar
Interest Rates and Central Bank Policies
One of the primary drivers of the Australian Dollar is the interest rate set by the Reserve Bank of Australia (RBA). The RBA’s decisions influence the overall interest rate environment in Australia. By adjusting interest rates, the RBA aims to maintain an inflation rate within the 2 – 3% target range. Relatively high interest rates compared to other major central banks tend to support the AUD, while lower rates have the opposite effect. Additionally, the RBA’s use of quantitative easing or tightening measures can impact credit conditions and, in turn, the value of the AUD.
Commodity Prices and Trade
As a resource – rich nation, Australia’s largest export is Iron Ore. The price of Iron Ore has a significant impact on the AUD. When the price of Iron Ore rises, the demand for the AUD typically increases, as more of the currency is needed to conduct trade. This, in turn, drives up the value of the AUD. Conversely, a decline in Iron Ore prices can put downward pressure on the currency.
Trade Balance and Chinese Economy
The Trade Balance, which reflects the difference between a country’s export earnings and import payments, is another crucial factor for the AUD. A positive trade balance, where exports exceed imports, strengthens the currency. Australia’s largest trading partner is China, and the health of the Chinese economy plays a vital role. When the Chinese economy is growing robustly, it demands more Australian raw materials, goods, and services, increasing the demand for the AUD and driving up its value. Conversely, a slowdown in the Chinese economy can lead to reduced demand for Australian exports and a weaker AUD.
Market Sentiment
Market sentiment, whether investors are in a “risk – on” or “risk – off” mode, also affects the AUD. In a risk – on environment, investors are more willing to take on risky assets, and the AUD, often considered a risk – sensitive currency, benefits. Conversely, during risk – off periods, investors tend to seek safe – haven assets, which can lead to a decline in the value of the AUD.
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