The AUD/USD pair is down 0.2% to near 0.7060 during the early European trading session on Tuesday. The Aussie pair is slightly under pressure as the Australian Dollar (AUD) drops after the release of the Reserve Bank of Australia (RBA) minutes, which lacked evidence of further interest rate hikes in the near term.
Earlier in the day, the RBA minutes of the February meeting showed that the rate hike was necessary to control inflation from rising further. “Members agreed inflation would likely stay above target too long without a policy response,” RBA minutes showed. Officials didn’t state any defined rate path and signaled that future decisions will be “data-dependent”.
Going forward, investors will focus on the Australian employment data for January, which will be published on Thursday. The employment data will influence market expectations for the RBA’s monetary policy outlook.
Meanwhile, the US Dollar (USD) trades broadly calm ahead of the opening of the United States (US) markets after an extended weekend. This week, major triggers for the US Dollar will be the release of Federal Open Market Committee (FOMC) minutes and the flash Q4 Gross Domestic Product (GDP) data.
AUD/USD technical analysis
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AUD/USD trades lower at around 0.7060 as of writing. Price holds above the rising 20-day Exponential Moving Average (EMA) at 0.6989, reinforcing a bullish bias. The 20-day EMA slopes higher, reflecting sustained upward momentum.
The 14-day Relative Strength Index (RSI) at 63 (bullish) has eased from recent extremes, indicating momentum remains positive without being stretched. The rising trend line from 0.6668 underpins the advance, with support aligning near 0.7021.
Maintaining traction above that trend support would keep buyers in control and leave scope for further gains. A daily close below the 20-day EMA at 0.6989 would soften the structure and open room for a deeper pullback. RSI holding above 50 confirms the positive bias; a sustained downturn through the midline would warn of fading momentum. If 0.7021 holds, dips could be shallow, while a loss of that area would shift risk to the downside.
(The technical analysis of this story was written with the help of an AI tool.)
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.