The AUD/USD pair extends the rally to around 0.7170 during the early European trading hours on Wednesday. The Australian Dollar (AUD) rises to near a three-year high against the Greenback amid hawkish expectations of the Reserve Bank of Australia (RBA).
Many analysts expect the Australian central bank to raise interest rates next week, following an inflation warning from a senior official a day earlier. RBA Deputy Governor Andrew Hauser said on Tuesday that the jump in oil prices will push inflation above the forecast 4.2%, warning that the Middle East war could force an interest rate rise within days. Hauser added that the response depends on the size and persistence of the price shock, which is very uncertain.
Markets are now pricing in nearly a 75% chance that the RBA will raise interest rates by 25 basis points (bps) to 4.1% next week as the Middle East tensions push up oil prices and fuel inflation risks, according to Reuters.
Technical Analysis:
In the daily chart, the near-term bias of AUD/USD stays bullish as price extends above the rising 100-day exponential moving average and holds close to the upper Bollinger Band, reflecting persistent upside momentum. The Bollinger envelope has widened over recent sessions, confirming an expansion in volatility aligned with the latest leg higher. RSI around the mid-60s remains in positive territory but below extreme overbought readings, indicating strong buying pressure with only moderate signs of fatigue.
Initial support emerges at 0.7120, guarding the psychological 0.7100 area and the Bollinger middle band clustered just below 0.7050. A daily close under that zone would expose deeper support at 0.7020 and then 0.6960, where the broader uptrend from the 100-day EMA would come under scrutiny. On the upside, immediate resistance stands at 0.7240 and then 0.7300, where the upper Bollinger Band extension would likely temper further gains.
(The technical analysis of this story was written with the help of an AI tool.)
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.
Read the full article here
