Key Moments
- AUD/USD trades near 0.7060 in Asian dealings after modest prior-day losses, supported by a firmer Australian Dollar.
- The RBA is expected to hold the Official Cash Rate at 4.35% for a second straight meeting, with the decision due at 04:30 GMT.
- Société Générale highlights a short-term uptrend in AUD/USD after the pair defended its 200-DMA and formed higher highs and higher lows.
RBA Decision in Focus as AUD/USD Recovers
AUD/USD is trading around 0.7060 during Asian hours on Tuesday, recovering after recording only modest losses in the previous session. The currency pair is finding support as the Australian Dollar (AUD) remains firm ahead of the Reserve Bank of Australia’s (RBA) policy announcement later in the day.
Market participants widely anticipate that the RBA will leave the Official Cash Rate (OCR) unchanged at 4.35% for a second consecutive meeting. The rate decision is scheduled for release at 04:30 GMT, alongside the Monetary Policy Statement (MPS) and updated projections for the economy. RBA Governor Michele Bullock is set to hold a press conference at 05:30 GMT following the announcement.
Technical Backdrop: Société Générale Sees Constructive AUD/USD Setup
Strategists at Société Générale note that AUD/USD has recently demonstrated notable technical strength. They point out that the pair
“defended the 200-DMA in June and has since formed a series of higher highs and higher lows on the daily time chart, highlighting the onset of a short-term uptrend.”
According to the bank, this evolving price structure supports a constructive near-term outlook for the Australian Dollar against the U.S. Dollar, with the pattern viewed as a signal of improving momentum.
Dollar Pressure After Soft Payrolls Supports AUD
The Australian Dollar is also drawing support from weakness in the U.S. Dollar (USD) after a July payrolls report came in weaker than anticipated. The softer labor data prompted a more dovish reassessment of U.S. monetary policy expectations, reintroducing two-sided policy risk in a market that had previously leaned toward the Federal Reserve (Fed) holding interest rates firmly steady.
Hawkish Fed Commentary from Cleveland Fed’s Hammack
Despite the shift in market expectations following the labor data, Cleveland Fed President Beth Hammack signaled that additional tightening may still be required. She stated that the Federal Reserve will need to implement more than one interest rate increase to contain broadening inflation pressures. In an interview with Yahoo Finance, Hammack said current policy settings are not yet
“meaningfully restrictive”
enough to curb economic momentum.
Hammack had already dissented at the July policy meeting in favor of an immediate rate hike. She identified the forthcoming Consumer Price Index (CPI) release as the next key indicator that could shape the Fed’s policy trajectory.
Event Timeline Snapshot
| Event | Detail | Time (GMT) |
|---|---|---|
| RBA Rate Decision | Official Cash Rate expected to remain at 4.35% | 04:30 |
| Monetary Policy Statement | Accompanies rate decision with updated forecasts | 04:30 |
| RBA Governor Press Conference | Michele Bullock comments on policy and outlook | 05:30 |
Fundamental Drivers of the Australian Dollar
Role of Interest Rates and Domestic Conditions
A key determinant of the Australian Dollar is the level of interest rates set by the RBA. The policy rate influences funding costs among Australian banks and, by extension, borrowing costs across the broader economy. The central bank’s primary objective is to keep inflation within a 2-3% range, adjusting rates higher or lower to achieve that goal.
Relatively higher interest rates compared with other major central banks tend to be supportive for the AUD, while relatively lower rates can weigh on the currency. In addition to rate policy, the RBA can deploy quantitative easing or tightening to affect credit conditions. Quantitative easing is typically considered negative for the AUD, while quantitative tightening is generally seen as supportive.
China, Iron Ore, and Trade Balance as Key External Drivers
Australia’s status as a resource-rich exporter means commodity prices, especially Iron Ore, play a crucial role in shaping AUD performance. Iron Ore is the country’s largest export, with China serving as the principal buyer. Movements in Iron Ore prices can therefore have a direct impact on demand for the AUD.
When Iron Ore prices rise, aggregate demand for Australian exports tends to increase, often providing a boost to the currency. Conversely, falling Iron Ore prices can pressure the AUD. Higher prices can also support a stronger Trade Balance, which is typically positive for the currency.
The health of the Chinese economy is another central factor. Strong Chinese growth generally leads to greater purchases of Australian raw materials, goods, and services, supporting the AUD. If Chinese growth falls short of expectations, demand for Australian exports can weaken, which may weigh on the currency. Surprises – positive or negative – in Chinese economic data often translate quickly into moves in AUD pairs.
Trade Balance Effects on the AUD
The Trade Balance – the difference between export earnings and import payments – is an additional driver of the Australian Dollar. If Australia sells more to foreign buyers than it spends on imports, the resulting surplus can strengthen the AUD as overseas purchasers need the currency to pay for Australian goods and services.
A positive Trade Balance is typically supportive of the AUD, while a negative Trade Balance can have the opposite effect. For investors and traders, shifts in export demand, commodity prices, and global growth trends can therefore be critical indicators when assessing the outlook for the Australian Dollar.
TradingPedia.com is a financial media specialized in providing daily news and education covering Forex, equities and commodities. Our academies for traders cover 
