AUD/USD Price Forecast: Recovers to near 0.7000 amid US Dollar’s weakness
- AUD/USD rises to near 0.6995 after a weak opening.
- The Fed is highly anticipated to leave interest rates unchanged in the policy meeting later this month.
- Soft US CPI data for June forced traders to pare hawkish Fed bets.
The Australian Dollar (AUD) trades 0.12% higher to near 0.6995 against the US Dollar (USD) during the Asian trading session on Monday. The AUD/USD pair bounces back after a weak opening, as the US Dollar faces selling pressure amid intensified expectations that the Federal Reserve (Fed) will not hike interest rates in the policy meeting later this month.
At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades marginally lower around 100.70. The USD Index fell sharply after a strong opening move.
According to the CME FedWatch tool, the odds of the Fed leaving interest rates unchanged in the July meeting are 85.6%, up from 65.8% recorded last week. Market participants turned confident that the Fed will maintain the status quo in the July meeting after the release of the United States (US) Consumer Price Index (CPI) data for June, which showed that inflationary pressures cooled down.
On the Australian Dollar front, the currency outperforms its major peers, following the People’s Bank of China’s (PBOC) monetary policy announcement, in which it left Prime Lending Rates (PLRs) unchanged.
AUD/USD technical analysis
AUD/USD trades higher at around 0.6990 at press time, holding a modestly bullish near-term bias as it extends above the 20-day exponential moving average (EMA) at 0.6970. The pair has reclaimed this short-term trend indicator after its late-June weakness, while the Relative Strength Index (14) at 51.8 sits just above the neutral line, suggesting stabilizing upside momentum rather than aggressive buying pressure.
On the downside, immediate support is located at the 20-day EMA near 0.6970, which is likely to act as the first line of defence on any pullback, followed by the recent price troughs below 0.6950 if sellers regain control. Below 0.6950, the March 30 low at 0.6874 will be the key support level. As long as spot holds above the 0.6970 region on a daily closing basis, the technical tone should remain mildly constructive. Looking up, the pair could extend its advance towards 0.7100 if it manages to break above the July 15 high at 0.7021.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.