The Australian Dollar (AUD) faces mounting challenges as it extends its losses against the US Dollar, influenced by a complex web of global economic factors. Last week, the Reserve Bank of Australia (RBA) made a significant move by lowering its Official Cash Rate (OCR) by 25 basis points to 4.10%, marking the first rate cut in four years. Meanwhile, the United States reported a 2.3% growth in its GDP Annualized for the fourth quarter of 2024, aligning with market expectations and strengthening the US Dollar. As these developments unfold, the AUD's trajectory remains uncertain, with China's response to trade threats playing a crucial role in shaping its future performance.
Australia, known for its abundant natural resources, relies heavily on its biggest export, Iron Ore, to drive the AUD. With China as its largest trading partner, the health of the Chinese economy significantly impacts Australia's currency performance. Furthermore, domestic factors such as inflation rates, economic growth, and trade balance also play pivotal roles in determining the strength of the AUD. In response to economic pressures, the People's Bank of China (PBOC) injected CNY300 billion on Tuesday through its one-year Medium-term Lending Facility (MLF), maintaining the rate at 2%.
RBA Governor Michele Bullock addressed the recent interest rate cut, acknowledging the impact of high interest rates on the economy but warning that it is premature to declare victory over inflation. This cautionary stance comes amid escalating tensions as former US President Donald Trump reaffirmed his plan to impose an additional 10% tariff on Chinese imports, further weakening the Australian Dollar.
The AUD/USD currency pair currently faces immediate resistance at the nine-day Exponential Moving Average (EMA) of 0.6297, followed closely by the 14-day EMA at 0.6302. A decisive breakthrough above these levels could bolster short-term price momentum, potentially allowing the pair to challenge a two-month high of 0.6408. However, the pair also tests immediate support at the psychological level of 0.6200, with a breach below this threshold likely to push it toward the 0.6087 region.
Iron Ore remains a linchpin for Australia's economic stability, with exports accounting for $118 billion annually as of 2021. The price of Iron Ore shares a positive correlation with the Australian Dollar, making it a critical factor in currency valuation. Additionally, a positive net Trade Balance tends to strengthen the AUD, while a negative balance exerts downward pressure.