Australian Dollar rises as traders consider the effects of the US-China trade deal and look at US CPI data.

May 12, 2025

The Australian Dollar Moves Up Ahead of US CPI Report

The Australian Dollar is gaining ground as investors await the US April Consumer Price Index (CPI) report.
Westpac’s Consumer Confidence Index in Australia bounced back with a 2.2% increase after previously declining by 6.0%.
US Trade Representative Jamieson Greer mentioned that tariffs on China could be reinstated if negotiations falter.

The Australian Dollar (AUD) has recovered some of its recent losses against the USD, increasing by 2.2% to reach 92.1 this May. This bounce comes following a month where values dropped by 6.0%, suggesting some recovery in investor sentiment, likely influenced by the Westpac Consumer Confidence Index’s uptick.

Despite the Australian Dollar’s gains, the US dollar has seen strengthening, diminishing the value of AUD/USD pairs. Furthermore, the US and China have tentatively agreed to greatly reduce tariffs after productive talks over the weekend in Switzerland. This agreement includes slashing US tariffs on Chinese products from 145% to 30%, and reducing Chinese tariffs on US imports from 125% to 10%.

Australia’s substantial trade connections with China make it particularly susceptible to any turbulence in US-China relations. The easing of global trade tensions has led many investors to adjust their expectations regarding aggressive cuts to domestic interest rates. The Reserve Bank of Australia (RBA) is now projected to lower its cash rate to about 3.1% by the end of the year, a slight increase from the previous forecast of 2.85%. However, a 25 basis point decrease in the upcoming policy meetings is still widely anticipated.

The Australian Dollar Rises as the US Dollar Declines

The US Dollar Index (DXY), which gauges the dollar against six major currencies, is trading lower at approximately 101.60. Investors are eagerly awaiting the April CPI report, expected later today. Analysts predict a rebound in headline inflation from -0.1% to 0.3%, with Core CPI also likely increasing from 0.1% to 0.3%.
After two days of negotiations, both the US and China reported “substantial progress,” with China’s Deputy Prime Minister His Lifeng calling the talks a significant first step toward stabilizing relations.
US Treasury Secretary Bescent and Trade Representative Greer referred to the discussions as a positive move toward addressing the $400 billion trade imbalance. However, Greer cautioned that tariffs on Chinese goods could be brought back if the agreement falls through.
The Federal Reserve recently adjusted interest rates to a range of 4.25%-4.50%, but expressed growing concerns about inflation and rising unemployment, complicating the market outlook.
Fed Chair Jerome Powell highlighted that ongoing tariffs could obstruct the central bank’s efforts to manage inflation and employment by 2025, hinting that inconsistent policy could push market actors toward a more cautious approach in forthcoming rate changes.
In April, China’s Consumer Price Index (CPI) declined for the third straight month, falling 0.1% year-on-year, which aligns with market predictions. The Producer Price Index (PPI) also contracted by 2.7%, below the expected 2.5% decline.
China’s trade data revealed a surplus of $961.8 billion in April, surpassing expectations. Exports saw an 8.1% year-on-year increase, though that’s a slowdown from prior gains, and imports dipped by 0.2% year-on-year.
In Australia, the AI Group Industry Index showed a slight improvement in April, marking 33 months of contraction, largely due to weaknesses in export-dependent manufacturing. This ongoing softness has reinforced expectations that the RBA might implement a 25 basis point cut soon.

AUD/USD: Nearing a Key Technical Level

The AUD/USD pair was hovering around 0.6370 on Tuesday, with technical indicators suggesting potential volatility. It currently remains below the nine-day exponential moving average (EMA), and the 14-day relative strength index (RSI) is under the 50 threshold, indicating bearish trends.

Looking at key support levels, a drop below the 50-day EMA at approximately 0.6344 could intensify bearish sentiment and possibly open pathways for declines toward 0.5914, a level unseen since March 2020.

On the other hand, there’s a chance for the AUD/USD to test the nine-day EMA at 0.6402, which would allow a revisit of the six-month peak at 0.6515 from December 2024.

AUD/USD: Daily Trend Analysis

The AUD remains strong against major currencies today, reflecting its resilience and responsiveness to ongoing trade discussions and economic indicators.