- AUD/USD advanced to fresh highs near 0.6630 on Thursday.
- The US Dollar managed to reverse part of its recent intense weakness.
- Australian business activity remains firm in July. Focus on inflation data.
The Australian Dollar (AUD) halted its winning streak vs. the US Dollar (USD) on Thursday after AUD/USD climbed to the 0.6630 region for the first time since early November 2024. The move, however, ran out of steam as the day progressed, and the Greenback managed to claw back some gains.
Mixed data point to a healthy economy
According to preliminary data, Australian S&P Global Manufacturing and Services PMIs improved further in July to 51.6 and 53.8, respectively.
However, last week’s labour report offered little cheer. Unemployment ticked up to 4.3%; only 2K new positions were created, and the participation rate edged higher to 67.1%. Regarding consumer prices, inflation expectations eased to 4.7% in July from the previous month’s 5.0% gain.
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Rate cuts grow louder
The Reserve Bank of Australia (RBA) surprised markets this month by leaving the cash rate at 3.85% on a split vote. Incoming governor Michele Bullock framed the disagreement as “timing rather than direction,” hinting that a softer second‑quarter CPI could give the board license to roll out its first cut.
Furthermore, Minutes released later reinforced that message: every member expects underlying inflation to slide, clearing the runway for “some additional reduction in interest rates over time.”
Futures traders now peg August as the most likely resumption of the bank’s easing cycle, with roughly 75 basis points of cuts priced in for the next 12 months.
China’s two‑speed comeback keeps traders guessing
Australia’s biggest trading partner remains a picture of contrasts.
Second‑quarter GDP posted a healthy 5.2% yearly gain, and factory output is running near 7%, yet retail spending is stuck below 5% as households hoard cash. June’s hefty US$114.8 billion trade surplus paints an economy cruising, not sprinting.
In addition, the People’s Bank of China (PboC) held its one‑ and five‑year Loan Prime Rates (LPR) at 3.00% and 3.50%, respectively.
Diverging policy paths threaten to widen the gap
Both the RBA and the US Federal Reserve (Fed) are on pause, but that is where the symmetry ends. In Washington, policymakers fret that new tariffs and a firmer June CPI reading could reignite inflation. Any renewed price pressure on either side of the Pacific could quickly reopen the yield gap.
Speculators vote with their feet
CFTC positioning shows fast money heading for the exits: net Aussie shorts increased to about 75K contracts in the week to July 15, while total open interest slid to a four‑week low near 150.5K contracts.
Charts at a glance
The initial resistance stands at the 2025 ceiling of 0.6625 (July 24), seconded by the November 2024 ceiling at 0.6687 (November 7), and ultimately the psychological 0.7000 barrier.
On the downside, further losses could pave the way for a move to the interim 55-day Simple Moving Average at 0.6496, prior to the July floor at 0.6454 (July 17), while additional backing sits at the 200‑day SMA at 0.6397.
Momentum gauges paint a mixed picture. The Relative Strength Index (RSI) hovers near 59, keeping the door open for further gains. Yet the Average Directional Index (ADX) is languishing below 16, signalling a trend that lacks genuine power.
AUD/USD daily chart
The takeaway
Until Beijing ignites a stronger growth spark or a fresh trade dispute makes headlines, the Aussie appears constrained by familiar ranges. With the RBA signalling gentle nudges rather than bold leaps, traders’ eyes stay glued to China’s data docket and America’s inflation chatter in search of the next catalyst.
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.
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