Australian Dollar Stays Strong as RBA Holds Rates.
The Australian Dollar (AUD) is holding steady against the US Dollar (USD) as strong economic data from Australia offsets concerns about global trade and the US economy. The Reserve Bank of Australia (RBA) remains cautious about further rate cuts, supporting the currency’s strength. Meanwhile, the US Dollar is under pressure due to weaker job numbers and growing economic uncertainty.
Why the Australian Dollar is Holding Up.
- Strong GDP Growth in Australia
Australia’s economy grew 0.6% in Q4 2024, exceeding market expectations of 0.5%. On a yearly basis, GDP rose 1.3%, improving from 0.8% in the previous quarter.
This strong economic growth boosts confidence in the Australian economy and supports the AUD. A growing economy reduces the chances of further rate cuts by the RBA, making the currency more attractive to investors.
- Trade Surplus and Rising Exports
Australia’s trade surplus increased to AUD 5,620 million in January, surpassing expectations of AUD 5,500 million. Exports grew 1.3% MoM, reaching an 11-month high, mainly driven by non-monetary gold.
At the same time, imports fell by 0.3%, showing that while domestic demand is stable, external demand for Australian goods is strong. However, since Australia’s largest trading partner is China, any slowdown there could impact future trade figures.
RBA’s Cautious Approach to Interest Rates
The Reserve Bank of Australia (RBA) has made it clear that it is not rushing to cut rates further. The latest RBA Meeting Minutes stated that February’s rate cut does not mean more cuts will follow soon.
Deputy Governor Andrew Hauser noted that global trade uncertainty is at a 50-year high, mainly due to US trade policies and geopolitical risks. The RBA’s cautious stance suggests that Australia’s economy is strong enough to avoid aggressive rate cuts, helping support the Australian Dollar.
US Dollar Weakens on Economic Concerns
While the Australian Dollar remains firm, the US Dollar Index (DXY) has been falling for five consecutive days, trading around 103.80 at the time of writing.
1. Slower Job Growth in the US
The US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls (NFP) increased by only 151,000 in February, lower than the expected 160,000. January’s job growth was also revised down to 125,000 from 143,000.
Slower job growth raises concerns about the US economy, reducing confidence in the US Dollar.
2. Rising Economic Uncertainty in the US
San Francisco Fed President Mary Daly stated that business uncertainty is increasing, which could weaken demand in the US economy. While she did not signal an immediate rate change, growing uncertainty could affect business spending and economic growth.
How Global Trade Affects the AUDUSD Pair.
1. China’s Weak Inflation Data
China’s Consumer Price Index (CPI) fell by 0.7% in February, worse than the expected 0.5% decline. This marks the first consumer deflation since early 2024.
China’s slowing economy could reduce demand for Australian exports, potentially weakening the AUD in the long run.
2. China’s New Tariffs on Canada
China has imposed 100% tariffs on Canadian rapeseed oil, oil cakes, and peas, along with a 25% levy on aquatic products and pork. This move is in retaliation for Canada’s tariffs in October, escalating trade tensions.
While this does not directly impact Australia, China’s tough stance on trade could create risks for global markets, including Australia.
US Trade Policies and Market Reaction
US Commerce Secretary Howard Lutnick confirmed that 25% tariffs on steel and aluminum imports will take effect this week. These tariffs, imposed by President Donald Trump, are aimed at protecting US steelmakers but could increase costs for industries relying on these materials.
Higher material costs could slow US industrial production, impacting global commodity demand, including Australia’s iron ore exports.
Meanwhile, President Trump’s statements on Ukraine, Russia, and military exercises involving China and Iran add to geopolitical risks, creating uncertainty in financial markets.
Conclusion:What’s Next for the Australian Dollar?
The Australian Dollar is holding strong due to solid economic growth, a trade surplus, and the RBA’s cautious stance on rate cuts. However, risks remain, including China’s economic slowdown, global trade tensions, and US monetary policy decisions.
At the same time, the US Dollar is struggling due to weaker job data and rising uncertainty, but higher US Treasury yields could limit its decline.
Looking ahead, markets will focus on US inflation data, Federal Reserve comments, and global trade updates to determine the AUDUSD direction. Traders should stay alert, as shifting market sentiment could cause further volatility in exchange rates.
