AUD/USD Price Forecast: More upside likely amid stabilization above 20-day EMA
- AUD/USD edges lower to near 0.6990 as the US Dollar gains slightly higher.
- The US Dollar rises amid fears of a resurgence in US inflation.
- Iran threatens to close the Red Sea if the US attacks Iranian infrastructure.
The Australian Dollar (AUD) trades marginally lower against the US Dollar (USD) at around 0.6990 during the European trading session on Friday. The Aussie pair edges down as the US Dollar ticks higher amid fears that the United States (US) inflation could re-accelerate after slowing down in June.
At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.1% higher to near 100.80.
Fears of a resurgence in US inflation are prompted by elevated energy prices amid continued aggression in the Middle East. Above that, Iran has threatened to close the Red Sea if the United States (US) strikes Iranian infrastructure.
On Wednesday, US President Donald Trump threatened to attack Iranian bridges and power plants if Tehran doesn’t return to the table for negotiations.
On the Australian Dollar (AUD) front, investors await the employment data for June, which will be released next week.
AUD/USD technical analysis
AUD/USD trades slightly lower at around 0.6990, but maintains a mildly bullish near-term bias as spot remains above the 20-day exponential moving average (EMA) at 0.6969. The pair has recovered from late-May lows and is consolidating just over this dynamic floor, while the Relative Strength Index (RSI) at 51 suggests neutral-to-positive momentum without yet reaching overbought conditions.
On the downside, immediate support is provided by the 20-day EMA at 0.6969, followed by the July 14 low at 0.6913. Below 0.6913, the pair could slide to near the March 30 low at 0.6833. Looking up, the pair could extend its advance towards the June 18 high at 0.7042.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
US Dollar FAQs
What is the US Dollar?
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
How do the decisions of the Federal Reserve impact the US Dollar?
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
What is Quantitative Easing and how does it influence the US Dollar?
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
What is Quantitative Tightening and how does it influence the US Dollar?
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.