AUD/USD Holds Firm as Support Signals Move Toward 0.73

Key Moments

Macro Drivers Supporting the Australian Dollar

AUD/USD recovered the bulk of its initial decline and was trading just under 0.7240 in early European dealings on Monday. The rebound in the pair tracked a firmer tone in the Australian Dollar (AUD) as investors positioned ahead of United States (US) President Donald Trump’s trip to China from May 13 to May 15.

The improved tone in AUD came despite a firm opening in the US Dollar. The US currency strengthened after US President Trump rejected Iran’s counterproposal, which called for recognition of Tehran’s authority over the Strait of Hormuz, compensation for war damages, and the release of frozen Iranian assets. The US Dollar Index (DXY) preserved its early advance, trading 0.26% higher around 98.10.

Focus on Trump-Xi Meeting and Implications for AUD

Market attention is turning to the upcoming meeting between US President Trump and Chinese leader Xi Jinping. According to US officials cited by Reuters, the agenda is expected to cover Middle East conflicts, Taiwan, Artificial Intelligence (AI), nuclear weapons, and critical minerals.

A constructive outcome from the Trump-Xi discussions would likely be supportive for the Australian Dollar, given the importance of exports to Beijing for the Australian economy.

Australian Dollar Performance Snapshot

The article notes that, based on current price action, the Australian Dollar was the strongest against the New Zealand Dollar among major currencies today.

The referenced heat map is described as showing percentage changes of major currencies relative to one another. In that framework, the base currency is taken from the left column and the quote currency from the top row. The value in each cell represents the percentage move of the base currency versus the quote currency.

Technical View: Rising 20-day EMA Anchors Bullish Bias

From a technical standpoint, AUD/USD has bounced back toward 0.7240 during the European session. The pair is maintaining a constructive bullish tone as spot remains above the 20-period Exponential Moving Average (EMA) at 0.7167, indicating that the recent climb continues to be supported by short-term trend dynamics.

The Relative Strength Index (RSI) is trading around 62, tilting to the bullish side while staying below overbought territory. This configuration suggests that buyers still retain control in the near term.

On the downside, the initial key support sits at the 20-day EMA near 0.7167. A decisive move below that level would point to waning bullish momentum and could open the door to a deeper pullback toward 0.7100.

On the topside, the pair is eyeing last week’s almost four-year high at 0.7277. A break above that threshold could prompt a test of 0.7300. If AUD/USD can hold above 0.7300 on a sustained basis, the advance may extend toward 0.7400.

Key Drivers of the Australian Dollar

One major determinant of the Australian Dollar (AUD) is the interest rate level set by the Reserve Bank of Australia (RBA). As Australia is rich in natural resources, the price of its principal export, Iron Ore, is also a crucial driver. Other important influences include the strength of the Chinese economy, inflation in Australia, the domestic growth rate, and the Trade Balance. Broader market sentiment – whether investors are favoring risk-on or risk-off positioning – also plays a role, with risk-on conditions generally supportive for AUD.

RBA Policy and AUD

The Reserve Bank of Australia (RBA) affects the Australian Dollar by setting the rate at which Australian banks lend to one another, which in turn shapes broader interest rate conditions in the economy. The RBA’s main objective is to keep inflation in a 2-3% range by adjusting policy rates. Comparatively higher interest rates versus other major central banks tend to support AUD, while relatively lower rates weigh on the currency. The RBA can additionally implement quantitative easing or tightening to manage credit conditions, with easing typically negative for AUD and tightening generally positive.

China’s Economic Health and the AUD

China’s role as Australia’s largest trading partner means that Chinese economic performance is a key factor for the Australian Dollar. When China’s economy is performing well, it tends to increase its purchases of raw materials, goods, and services from Australia, pushing up demand for AUD and supporting its value. When Chinese growth underperforms expectations, the opposite effect tends to occur. Surprises in Chinese growth data – either positive or negative – therefore often feed directly into AUD price action.

Iron Ore Prices and Currency Impact

Iron Ore is identified as Australia’s largest export, with China as the main destination. As a result, Iron Ore prices can materially influence the Australian Dollar. Rising Iron Ore prices are generally associated with a stronger AUD, as they bolster aggregate demand for the currency and contribute to a more favorable Trade Balance. Conversely, weaker Iron Ore prices can weigh on AUD and dampen Trade Balance dynamics.

Trade Balance and AUD Valuation

The Trade Balance – the difference between export earnings and import payments – is another important input for AUD valuation. When Australia exports more than it imports, demand from foreign buyers for Australian goods and services can lift the currency. A sustained positive Trade Balance tends to strengthen AUD, while a negative balance can be a headwind.

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