Australian Dollar Facing Technical Cliff Edge

The Australian Dollar (AUD/USD) is currently facing a technical cliff edge. If it does not recover, its next support level may be from the 2020 crash. Let's look at the ropes tied to the Aussie Dollar and see what's been pulling it down.

Investors Dodging Risk

Sadly, for Australians, a shift in global investor sentiment toward caution continues to weigh heavily on currency. When markets grow wary, safe-haven currencies like the US Dollar attract capital. In the longer term, this can then end up in gold. There's been no shortage of bad headlines in recent years: Houthis, Russia, The Middle East. These have battered our currency and left it on a painful downtrend.

Any evidence of waning global growth can undercut demand for commodities too which are a key pillar of Australia’s export-dependent economy. This, in turn, dents the AUD.

China

China’s economic outlook is part of the foundation of the Australian Dollar, given the nation’s role as Australia’s largest trading partner. Recent concerns about slower Chinese growth have further pressured the Aussie. Ongoing worries about China’s recovery (or lack thereof) hurt the outlook for Australian commodity exports like iron ore and coal. It's important to note that China is growing and outperforming most countries dramatically. That being said, any reduction in its production also hits Australia.

If any new strains emerge in trade relations between Beijing and Canberra, or if existing ones intensify, it could also add further downward pressure on AUD/USD. This is potentially most likely to come from Trump playing hardball with China and them taking out their anger on Australia. This is exactly what happened last time Trump was in office.

RBA Signals Easing. Fed Pumping Brakes

The biggest headline recently came from the Reserve Bank of Australia. The meeting minutes from the RBA’s December policy meeting show they are open to cutting interest rates as early as February. Their sudden change in tone surprised many analysts who previously expected the central bank to maintain a more restrictive stance for longer. Markets have since priced in a roughly 50% chance of a February rate cut.

Meanwhile, the U.S. Federal Reserve continues to project caution regarding further easing, widening the interest rate differential in favour of the U.S. Dollar. This situation has helped keep the Aussie pinned near its lows. April is now fully priced for a quarter-point cut in the 4.35% cash rate, with 3.85% implied by July.

The floor to look out for is the 2022 low at $0.6170

A break below the $0.6170–$0.6200 band might pull the Aussie back to levels last seen during the 2020 pandemic crash. On the upside, reclaiming $0.6339 could signal that buyers are stepping back in.