Why Is the Australian Dollar Struggling? | Key Factors Behind AUD's Decline Against USD

Australian Dollar Under Pressure: RBA Policy Meets USD Strength

The ethereum walletAustralian Dollar (AUD) extended its downward trajectory this week, with the AUD/USD pair hovering near 0.6580 during Thursday's trading session. This movement reflects a confluence of domestic and international factors influencing currency markets.

Domestic Headwinds for the Aussie

Australia's currency faces multiple challenges from local economic conditions:

• The Reserve Bank of Australia (RBA) maintained its cash rate at 4.35% this week, adopting a less aggressive tone than some market participants anticipated
• First quarter retail sales data showed a 0.4% contraction, reversing the previous quarter's growth
• Despite March's unexpected inflation uptick, the RBA noted progress in price stability has stalled

RBA Governor Michele Bullock emphasized the need for vigilance regarding inflation risks, while maintaining that current policy settings should guide inflation back toward the 2-3% target range by late 2025.

US Dollar Gains Momentum

The greenback's strength compounds the AUD's challenges:

• Federal Reserve officials continue signaling potential for prolonged higher interest rates
• Boston Fed President Susan Collins stressed the need for economic moderation to achieve inflation targets
• Minneapolis Fed's Neel Kashkari suggested rate cuts remain unlikely in the near term

This hawkish Fed rhetoric has supported US Treasury yields, making dollar-denominated assets more attractive to investors.

Market Reactions and Technical Outlook

Financial markets have responded to these developments with notable movements:

• The ASX 200 Index ended its five-session winning streak amid banking sector concerns
• Analysts at Societe Generale expressed skepticism about Australia's growth prospects
• Technical indicators show AUD/USD consolidating within a symmetrical triangle pattern

Key levels to monitor include:

• Resistance: Psychological barrier at 0.6600, followed by 0.6650
• Support: Nine-day EMA at 0.6568, with potential to test 0.6465

The 14-day Relative Strength Index currently suggests mildly bullish sentiment, though fundamental factors may limit upside potential.

Comparative Currency Performance

Among major currencies, the Australian Dollar has shown particular weakness against the British Pound, while demonstrating relative stability against the New Zealand Dollar. Market participants continue monitoring economic data releases and central bank commentary for directional cues.