Market Data 
- AUD/USD extends its downside to around 0.6340 in Thursday’s early Asian session.
- Trump tariff threats lift the US Dollar against the Aussie.
- Investors brace for the Australian January employment data on Thursday.
The AUD/USD pair extends its decline to around 0.6340 during the early Asian session on Thursday. Fresh US President Donald Trump tariff threats continue to underpin the US Dollar (USD) and weigh on the pair.
The strengthening of the Greenback is supported by concerns about escalating trade tensions. Last week, US President Donald Trump ordered his administration to consider imposing reciprocal tariffs on numerous trading partners. Late Tuesday, Trump said that he would likely impose tariffs of around 25% on foreign cars, while semiconductor chips and drugs are set to face higher duties.
“So far, the dollar has tracked the path it had during the previous Trump administration…and we can pretty much agree that Trump is doing exactly what he said,” said Chester Ntonifor, chief FX and global fixed income strategist, at BCA Research in Montreal.
The minutes from the FOMC meeting released on Wednesday indicated that the Fed policymakers believe that it is well positioned to take time to assess the outlook for economic activity, the labor market and inflation. Fed officials agreed that inflation must show clear signs of slowing down before any further rate reductions can be made.
The Reserve Bank of Australia (RBA) decided to cut its Official Cash Rate (OCR) by 25 basis points (bps) to 4.10% on Tuesday, the first rate cut in four years. The central bank warned that it was too early to declare victory over inflation and was cautious about the prospects of further easing. Investors await the release of Australian January employment data for fresh impetus, which is due later on Thursday.
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.
