- The Australian rebounded at about 0.67%, lifting the pair towards 0.6245, under the negative outlook last week.
- The Federal Reserve is betting firmly after softening US personal spending data.
- President Donald Trump will repeat that he will double China's tariffs to 20%.
- The tariff stalemate has expanded to Mexico and Canada, with no negotiations, according to Trump.
AUD/USD will increase to nearly 0.6230 as the US dollar (USD) faces strong sales pressure. After US (US) personal spending fell in January, Federal Reserve Dovish bets escalated. However, if President Donald Trump is pushing for additional tariffs on his major trading partners, including China, Mexico and Canada, the Australian Dollar (AUD) could once again face selling pressure.
Daily Digest Market Mover: Trader Aitrump's New Customs Pledge and RBA Policy Signals
- President Trump has announced his intention to raise tariffs on Chinese imports to 20% from the currently planned 10%. He also said there was “no room left for trading” in his role affecting Mexico and Canada, strengthening trade uncertainty across the currency market.
- Regarding the Fed policy, the probability of a Fed rate reduction at the June meeting increased to 74%, according to the CME FedWatch tool. Markets interpret the data as an indication that the Fed can ease policy stance more quickly.
- On the local front, the Reserve Bank of Australia (RBA) reduced its official cash rate by 25 basis points in February to 4.10%, indicating its future measurement approach. Investors are waiting for Tuesday's RBA minutes for hints for further mitigation measures as inflation remains a priority.
- The US dollar has weakened amid the Fed's cut speculation, but President Trump's decision to double China's tariffs brings attention. Australians who are sensitive to Chinese demand could drop rapidly if Beijing retaliates or if other trading partners see an increase in barriers.
- On Monday, Trump announced he would not talk about suspending military aid to Ukraine,” but tensions emerged after Ukrainian officials refused to do the previous “rare earth trade.”
- Meanwhile, the supportive stance of the People's Bank of China (PBOC) could mitigate risks in China, but a slowdown there still undermines Australia's commodity-driven economy.
AUD/USD Technical Outlook: Pair Outages Lose Streaks, but Remaining Vulnerable Under Important Barriers
The AUD/USD pair rose about 0.67% to the mid-0.6200 region, temporarily reversing its downward momentum from last week. The Australian stopped bleeding due to the softer US dollar, but after multiple loss sessions, the outlook remains bearish. Currently, the relative strength index (RSI) sits in a low band, but is rising sharply, suggesting that buyer interest will return. Meanwhile, the moving average convergence divergence (MACD) histogram shows a red bar, indicating a low rise force. The key resistance is located near the 0.6300-0.6330 handle, with an additional hurdle in recent swing altitudes. With the threat of updated tariffs or weak China's demand, it could easily make profits and cause last week's lowest retest.
Australian Dollar FAQ
One of the most important factors in the Australian Dollar (AUD) is the interest rate level set by the Reserve Bank of Australia (RBA). As Australia is a resource-rich country, another important factor is the price of iron ore, the biggest export. The health of China's biggest trading partner is Australia's inflation, its growth rate and trade balance. Market sentiment – Whether investors are taking on riskier assets (risk-on) or seeking safe haven (risk-off) is another factor in risk-on positive for AUD.
The Reserve Bank of Australia (RBA) affects the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This affects the level of interest rates across the economy. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up and down. Compared to other major central banks, relatively high interest rates support AUD, the opposite of relatively low. RBAs can also use quantitative relaxation and tightening to influence credit conditions, along with previous Aud negative and the latter positives.
As China is Australia's largest trading partner, the health of China's economy has a major impact on the value of the Australian Dollar (AUD). If the Chinese economy is on track, they will buy more raw materials, goods and services from Australia, raising demand for AUD and increasing its value. The opposite is when the Chinese economy is not growing as fast as expected. Therefore, positive or negative surprises in China's growth data often have a direct impact on the Australian dollar and its pair.
Iron ore is Australia's largest export, with China as its main destination accounting for $118 billion a year, according to data from 2021. Therefore, iron ore prices could be a driver for the Australian dollar. Generally, as iron ore prices rise, so does AUD as aggregate demand for the currency increases. If iron ore prices fall, the opposite is true. Also, higher iron ore prices tend to be more likely to be positive for Australia's trade balance, which is also positive for AUD.
Trade balances, the difference between what a country acquires from exports and what it pays for imports, are another factor that can affect the value of the Australian Dollar. If Australia produces a very popular export, the currency acquires pure value from the surplus demand generated from foreign buyers seeking to purchase the export, compared to what they spend to buy the import. Therefore, a positive net trade balance strengthens the AUD and has the opposite effect if the trade balance is negative.
