AUD/USD failed to extend its early gains beyond the 0.6250 zone as US tariffs and the prospect of a broad trade war weighed on sentiment. However, extra losses in the US Dollar and the cautious tone from the RBA Minutes kept spot modestly up.
From a technical standpoint, AUD/USD is currently eyeing its first hurdle at the 2025 peak of 0.6408 (recorded on February 21). A break above that could pave the way to the November 25 high at 0.6549, which also aligns closely with the key 200-day Simple Moving Average (SMA).
On the downside, initial support sits at the weekly low of 0.6186 (March 4). A move below this level could target the 2025 bottom at 0.6087, followed by the psychological 0.6000 level.
Momentum indicators are hinting at further weakness. The Relative Strength Index (RSI) has receded to nearly 38, and the Average Directional Index (ADX) regained pace above 16, suggesting some (albeit modest) improvement in the underlying trend.
Fundamental Overview
Further weakness and concerns over the US economy kept hurting the US Dollar (USD) on Tuesday. Against that backdrop, the US Dollar Index (DXY) broke below the 106.00 support for the first time since early December, while there was no respite for the downtrend in US yields across the curve.
The Australian Dollar (AUD), in the meantime, could not sustain the early advance to the 0.6240-0.6250 band, eventually succumbing to fresh selling pressure on the back of a mild bounce in the Greenback and steady fears surrounding US tariffs.
Trade tensions continue to steer the market
Ongoing trade disputes remain front and centre in the global markets. Risk-sensitive currencies like the Australian Dollar often feel the heat whenever tariff threats escalate. On this, 25% tariff on Canadian and Mexican imports took effect on Tuesday along with 20% duties on Chinese goods, exacerbating further the trade war narrative.
Since China is Australia’s largest export partner, any slowdown in Chinese demand could hit Australia’s commodity exports—and the AUD—particularly hard.
Over the weekend, Chinese business activity data was upbeat, but investors remain sceptical about a significant pickup in the country’s economy.
Central banks and inflation on the radar
Although the US Dollar has been swinging back and forth, there’s a sense that intensifying trade tensions could fan inflation and keep the Federal Reserve (Fed) leaning toward tighter monetary policy.
In Australia, the Reserve Bank of Australia (RBA) lowered its benchmark interest rate by 25 basis points to 4.10% in February, but made it clear this wasn’t the start of a major rate-cutting cycle. Officials see underlying inflation hovering around 2.7%.
Governor Michele Bullock has noted that more rate cuts might be possible if inflation continues to dip, but stressed that any decision will depend on upcoming data. Deputy Governor Andrew Hauser cautioned that market expectations—currently pricing in fewer than 50 basis points of cuts over the next year—may be too optimistic.
In terms of price growth, the latest RBA Monthly CPI Indicator (Weighted Mean CPI) came in at 2.5% in January, slightly below what analysts were anticipating.
Still around the RBA, the February Minutes revealed that policymakers debated either holding rates steady or cutting them by 25 basis points to 4.10%. They ultimately chose to lower the rate but stressed that this move did not guarantee further cuts. Officials also highlighted that Australia’s interest rates had not risen as high as in other economies and that the domestic labour market was stronger compared to those countries when they first began easing.
Commodities failed to lend support to AUD
Australia’s economy relies heavily on commodity exports, making it vulnerable to any slowdown in Chinese demand. That said, copper and iron ore prices resumed their downtrend on Tuesday, contributing to the sour mood accompanying the Australian Dollar.
Looking Ahead
Australia’s economic calendar is busy. Upcoming data releases include the S&P Global Services PMI and the Ai Group Industry Index. On March 5, we’ll get a look at Q4 GDP Growth Rate, and March 6 brings the Balance of Trade data alongside preliminary Building Permits and Private House Approvals.
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