AUD/USD Holds Above 0.7100 on Technical Breakout

Key Moments

Range Breakout Supports Australian Dollar Upside

The AUD/USD pair was unable to extend the strong advance registered after the Australian consumer price inflation release on Wednesday, and during the first half of the European session on Thursday it was trading with a slight downside bias. Even so, spot remained firmly above the 0.7100 level, reflecting a constructive tone for the Australian Dollar against its US counterpart.

The move higher following the latest monthly inflation figures in Australia boosted expectations that the Reserve Bank of Australia (RBA) could deliver another interest rate increase in May. Those renewed policy expectations were helping to keep demand for the Aussie Dollar intact. At the same time, the US Dollar stayed under pressure amid uncertainty surrounding US President Donald Trump’s trade policies. Together with a broadly positive mood in equity markets, this backdrop continued to support a favorable near-term outlook for AUD/USD.

Technical Picture: Indicators Align With Bullish Scenario

During the prior session, AUD/USD pushed through resistance defined by a trading range that had been in place for more than a week around the 0.7100 region. Market participants viewed this breakout as a key bullish signal that strengthened the case for additional gains in the pair.

From a technical standpoint, spot prices were holding above the rising 100-period Exponential Moving Average (EMA) on the 4-hour chart, indicating that the recent upswing remained intact. The Moving Average Convergence Divergence (MACD) line was positioned above the signal line, slightly in positive territory, and the accompanying histogram was also positive, albeit modestly, suggesting that buyers were still in control on pullbacks.

At the same time, the Relative Strength Index (RSI) stood at 58, remaining above the neutral 50 mark and pointing to positive, but not overstretched, momentum conditions.

Key Levels: Support and Resistance

Immediate downside support for AUD/USD was identified near 0.7080, with a more significant support zone emerging around 0.7040 in the vicinity of the 100-period EMA on the 4-hour timeframe. A decisive break below 0.7040 would undermine the current bullish technical structure.

On the topside, initial resistance was seen at 0.7125, positioned just above recent highs. A sustained move through this barrier would pave the way for a push toward the next resistance area around 0.7170.

(The technical analysis of this story was written with the help of an AI tool.)

Australian Dollar: Core Market Drivers

One of the primary influences on the Australian Dollar (AUD) is the policy stance of the Reserve Bank of Australia, particularly its decisions regarding interest rates. Because Australia is a resource-rich economy, the price of its main export, Iron Ore, is another major driver. The condition of the Chinese economy, Australia’s largest trading partner, also plays a crucial role, alongside domestic inflation, economic growth, and the Trade Balance. In addition, broader market sentiment – whether investors favor risk-on or risk-off positioning – is an important factor, with risk-on conditions typically benefiting the AUD.

RBA Policy and Its Impact on AUD

The Reserve Bank of Australia affects the value of the Australian Dollar by setting the benchmark for interbank lending rates, which in turn shapes interest rates across the broader economy. The central objective of the RBA is to keep inflation within a 2-3% band by raising or lowering rates as needed. When Australian interest rates stand relatively high compared with other major central banks, the AUD generally finds support, whereas relatively low rates tend to weigh on the currency. The RBA can also employ quantitative easing or quantitative tightening to alter credit conditions, with the former usually seen as negative for the AUD and the latter as positive.

China, Iron Ore, and Trade Balance Effects

Australia’s close economic relationship with China means that Chinese economic performance has a direct bearing on the AUD. Stronger growth in China typically leads to increased demand for Australian raw materials, goods, and services, lifting demand for the Australian Dollar. Conversely, slower Chinese growth can reduce demand and pressure the AUD. Surprises in Chinese growth indicators, whether to the upside or downside, therefore tend to have an immediate impact on the currency.

Iron Ore, which is Australia’s largest export and is primarily shipped to China, is another key variable for the AUD. Rising Iron Ore prices usually coincide with gains in the Australian Dollar, as foreign buyers require more AUD to pay for Australian exports. Falling prices tend to have the opposite effect. Higher Iron Ore prices also increase the likelihood of a favorable Trade Balance for Australia, which is generally supportive for the currency.

The Trade Balance itself – the difference between export earnings and import payments – can be a significant determinant of AUD performance. A positive Trade Balance, where export revenues exceed import costs, can bolster the Australian Dollar because of the additional demand created by foreign buyers of Australian goods and services. A negative balance, in which imports exceed exports, often has a weakening effect on the currency.