Australian Dollar remains subdued following GDP data

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Australian Dollar holds losses despite the GDP rose 0.8% QoQ in Q4 2025, accelerating from 0.5% in Q3.
S&P Global Australia Services PMI fell to 52.8 in February from 56.3, signaling slower services growth.
The US Dollar gained as fading expectations of rate cuts from the Federal Reserve.

AUD/USD extends its losses for the second successive session, trading around 0.7010 during the Asian hours on Wednesday. The pair remains under pressure following the release of Australian Gross Domestic Product (GDP) data. Attention now turns to the US ISM Services Purchasing Managers’ Index (PMI), due later in the day.

Data from the Australian Bureau of Statistics (ABS) showed on Wednesday that the economy expanded 0.8% quarter-over-quarter (QoQ) in Q4 2025, accelerating from 0.5% in Q3 and exceeding market expectations of 0.6%. On an annual basis, Q4 GDP rose 2.6%, up from 2.1% in the previous quarter and above the 2.2% consensus forecast.

Final figures indicated that the S&P Global Australia Services PMI declined to 52.8 in February from 56.3 in January, signaling a continued but slower expansion in services activity. The Composite PMI eased to 52.4 from 55.7. While this marked the seventeenth consecutive month of growth in private-sector output, the pace of expansion has moderated since the start of the year.

The AUD/USD pair also weakened amid renewed demand for the US Dollar (USD), supported by fading expectations of imminent rate cuts from the Federal Reserve (Fed). Rising Oil prices, driven by escalating tensions in the Middle East, have added to inflation concerns, prompting markets to scale back bets on near-term policy easing. Investors largely expect the US central bank to keep interest rates unchanged until summer, despite calls from US President Donald Trump for lower borrowing costs.

Australian Dollar FAQs

What key factors drive the Australian Dollar?

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

How does the health of the Chinese Economy impact the Australian Dollar?

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

How does the price of Iron Ore impact the Australian Dollar?

Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

How does the Trade Balance impact the Australian Dollar?

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.