The Australian Dollar (AUD) maintained its stability against the US Dollar (USD) on Thursday, buoyed by reduced market concerns over the size of new tariffs on China proposed by US President Donald Trump. The AUD/USD pair traded near 0.6270, reflecting a steady performance as traders increasingly anticipate that the Reserve Bank of Australia (RBA) may soon cut interest rates, possibly as early as next month.
Australia's economic health is closely linked to China's economy, its largest trading partner. When China's economy prospers, it increases its purchase of raw materials, goods, and services from Australia, driving up the demand and value of the AUD. Iron ore, Australia’s largest export, plays a pivotal role in this dynamic, contributing around $118 billion annually to the nation's economy. Consequently, fluctuations in iron ore prices are significant drivers of the AUD's value.
The RBA exerts considerable influence over the Australian Dollar by setting the interest rates at which Australian banks lend to each other. The central bank's primary mission is to maintain inflation between 2% and 3%, adjusting interest rates accordingly. The RBA can also employ quantitative easing and tightening to impact credit conditions, with easing generally being AUD-negative and tightening AUD-positive.
On Thursday, the AUD/USD pair demonstrated movement within an ascending channel pattern on the daily chart, hinting at a potential bullish trend. The 14-day Relative Strength Index (RSI) hovered slightly above 50, reflecting positive market sentiment. Initial support for the AUD appeared at the nine-day Exponential Moving Average (EMA) at 0.6244, followed by the 14-day EMA at 0.6238. Stronger support was identified at the ascending channel's lower boundary around 0.6220, with further support at the psychological level of 0.6200.
The Australian Dollar gained strength as President Trump's revised tariffs on China were significantly smaller than initially anticipated, alleviating some of the market's trade-related concerns. This development contributed to the AUD's steadiness against the USD.
In the broader economic context, the US Consumer Price Index showed a year-over-year increase of 2.9% in December, up from 2.7% in November, aligning with market expectations. Meanwhile, the US Dollar Index (DXY) remained above 108.00 at the time of writing, underscoring the USD's relative strength.