AUD/USD Price Forecast: Holds above 0.7150; remains confined in two-week-old range
- AUD/USD bulls remain on the sidelines during the Asian session amid a combination of diverging forces.
- The US-Iran peace reports undermine the safe-haven USD and lend some support to the currency pair.
- Hawkish Fed expectations limit USD losses, while reduced RBA rate hike bets cap gains for the Aussie.
The AUD/USD pair struggles to capitalize on the previous day's goodish rebound from sub-0.7100 levels, or a one-week low, and oscillates in a range during the Asian session on Friday. Spot prices, however, hold above 0.7150 and seem poised to register modest gains for the first time in three weeks.
Reports that the US and Iran have reached a draft agreement to extend the ongoing ceasefire for 60 days underpin the US Dollar (USD) safe-haven status, which, in turn, is seen acting as a tailwind for the AUD/USD pair. Investors, however, remain skeptical about a potential US-Iran peace deal amid major disagreements over Tehran's nuclear program and the Strait of Hormuz.
Apart from this, a rise in US inflation at the fastest pace in three years in April reaffirmed expectations that the US Federal Reserve (Fed) will raise borrowing costs by the end of this year and acts as a tailwind for the USD. Furthermore, reduced bets for an interest rate hike by the Reserve Bank of Australia (RBA) in June contribute to capping the upside for the AUD/USD pair.
From a technical perspective, spot prices remain confined in a familiar band held over the past two weeks or so. The top end of the trading range coincides with the 100-period Simple Moving Average (SMA) on the 4-hour chart and the 23.6% Fibonacci retracement level of the AUD/USD pair's March-May upswing. This points to a mildly capped bias despite constructive momentum.
Meanwhile, the Relative Strength Index is near 56, and a marginally positive Moving Average Convergence Divergence (MACD) reading hints that sellers are not in full control. That said, a move beyond the aforementioned confluence hurdle, near the 0.7180-0.7185 area, is needed to confirm that the recent corrective slide from a multi-year top has run its course and positioning for further gains.
A clear break above this cluster would open the way toward the 0.7279 swing high. On the downside, first support emerges at the 38.2% Fibonacci level near 0.7109, ahead of the 50.0% retracement at 0.7056, with deeper pullbacks exposing 0.7003 and then 0.6928 before the broader base at 0.6833.
(The technical analysis of this story was written with the help of an AI tool.)
AUD/USD 4-hour chart
Australian Dollar FAQs
What key factors drive the Australian Dollar?
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.
How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?
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.
How does the health of the Chinese Economy impact the Australian Dollar?
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.
How does the price of Iron Ore impact the Australian Dollar?
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.
How does the Trade Balance impact the Australian Dollar?
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.
