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13 Jan 2025
Australian Dollar rebounds modestly from multi-year lows
- AUD/USD recovers to 0.6160 on Monday, up 0.16%.
- US Dollar strength remains intact following robust NFP report.
- RBA’s dovish hints keep the Aussie under pressure.
The Australian Dollar managed to regain the smile and leave behind four consecutive daily retracements on Monday, gathering some traction soon after hitting lows not seen since April 2020 near 0.6130. Despite the mild uptick, the currency remains weighed down by strong US employment data and a cautious outlook from the Reserve Bank of Australia (RBA).
Daily digest market movers: Aussie gains some ground after a stellar US jobs report
- The US Bureau of Labor Statistics reported 256,000 new jobs last month, beating the 160,000 forecast; November’s figure was revised from 227,000 to 212,000.
- The Unemployment Rate dropped to 4.1%, while Average Hourly Earnings decreased from 4% to 3.9%.
- Traders now expect the Federal Reserve to cut rates only once in 2025, boosting US Dollar momentum. In addition, the US economic calendar will feature December’s Consumer Price Index figures, which might set the pair’s dynamics.
- The US 10-year Treasury yield soared to near 4.80%, while the US Dollar Index (DXY) touched 109.96, its highest level since November 2022.
- The Aussie remains under pressure due to RBA’s dovish stance and soft Australian fundamentals, compounded by worries over China’s slowing economy.
AUD/USD technical outlook: Gains remain fragile as oversold signals persist
The AUD/USD rose by 0.16% to 0.6160 on Monday, attempting to stabilize near the lowest level since April 2020. The Relative Strength Index (RSI) hovers at 32, indicating a near-oversold condition but showing a modest improvement.
Meanwhile, the Moving Average Convergence Divergence (MACD) histogram prints rising red bars, suggesting that bearish momentum has softened yet not fully reversed. Although the pair has managed to stop the bleeding, lingering headwinds including a strong US Dollar and RBA rate-cut speculation continue to cloud the outlook.
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.