The Australian Dollar (AUD) has faced decline for six consecutive days, pressured by US tariffs on Chinese imports, which are now set at 20%. The US GDP grew by 2.3% in Q4 2024, matching market expectations, while AUD/USD trades around 0.6220, with support at 0.6200.
A fall below 0.6200 may see the pair drop to 0.6087, its lowest since April 2020. Following the GDP announcement, the US Dollar Index rose above 107.00, as market sentiment reacted to the tariff threats impacting Australia-China trade dynamics.
Australia’s Private Capital Expenditure data fell by 0.2% in Q4 2024, signifying an unexpected contraction. The Reserve Bank of Australia’s Deputy Governor indicated concerns about inflation and a tightened labour market, coinciding with a recent reduction of the Official Cash Rate to 4.10% after four years.
Ongoing trade war risks remain prominent, especially with data releases and interactions between the US and China. The health of China’s economy and the price of iron ore play vital roles in influencing the AUD, given their direct connection to Australia’s exports.
Interest rates set by the RBA significantly influence the AUD’s relative strength, affecting overall economic conditions. A robust trade balance may support the currency, while a negative balance could lead to a depreciation. In summary, the AUD is adversely affected by geopolitical tensions and its economic context in global markets.
Philip Lowe’s comments on inflation and the state of the labour market highlight an economy at a turning point. With the Reserve Bank of Australia having recently lowered the cash rate to 4.10%—the first cut in four years—the policy shift suggests the central bank is trying to mitigate domestic challenges. Meanwhile, the Australian Dollar’s ongoing struggles against the US Dollar underscore external pressures, particularly the deepening trade tensions between the world’s two largest economies.
From a trading standpoint, the 0.6200 level serves as an important threshold. Should the pair fall through this point, further losses may see it testing 0.6087, a level last reached during the market stress of early 2020. Given the recent contraction in private capital expenditure, a decline in business investment could add further weight to an already pressured currency. Those involved in the market must acknowledge that downward momentum may persist if economic data continues to disappoint.
The rise in the US Dollar Index above 107.00 following the GDP report indicates that traders are maintaining confidence in the US economy, which, for now, remains resilient. That resilience, combined with a more restrictive trade position from Washington, raises concerns over Australia’s economic exposure to Chinese demand. China’s economy has long played a substantial role in shaping the strength of the Australian Dollar, particularly through its influence on commodity exports.
We cannot overlook the importance of iron ore prices as they remain a leading factor in the currency’s performance. Fluctuations in China’s industrial output tend to dictate movement in demand for Australian raw materials. If China were to slow materially, it would ripple through Australia’s export revenues, exerting further downward pressure on the currency.
In the weeks ahead, updates on trade negotiations between the US and China should be carefully observed, as any escalation could lead to further losses for the Australian Dollar. A broader shift in risk sentiment, particularly one driven by concerns over global economic growth, may also play a role in influencing price action. While a stabilisation above 0.6200 would provide temporary relief, broader macroeconomic forces are likely to dictate whether the currency finds stability or continues facing depreciation.
