Daily Price Outlook
During the European trading session, the AUD/USD currency pair failed to stop its downward rally and remained under pressure around 0.6260 level on Tuesday. However, the decline came after former US President Donald Trump announced a 25% expansion of steel and aluminum tariffs, removing trade agreements with key allies, including Australia. The White House confirmed that all previous tax exclusions had been removed and hinted at possible new tariffs on microchips and vehicles in the coming weeks.
At the same time, the US Dollar gained strength, putting more pressure on the Australian Dollar. The US Dollar Index (DXY), which measures the USD against six major currencies, continued its winning streak for the fourth straight session, climbing near 108.50. A stronger USD makes it harder for the Australian Dollar to recover, keeping the AUD/USD pair under pressure.
Strong US Dollar and Fed's Rate Cut Uncertainty Weigh on AUD/USD
On the US front, the broad-based US Dollar has been gaining strength, putting pressure on the AUD/USD pair.
The US Dollar Index (DXY), which tracks the USD against six major currencies, extended its winning streak for the fourth consecutive session, reaching near 108.50.
The main reason behind this strength is the growing belief that the Federal Reserve will delay interest rate cuts due to rising inflation concerns.
A recent Reuters poll showed that most economists no longer expect a rate cut in March, with many now predicting at least one cut by June. However, opinions remain divided.
The US job market data also played a role in boosting the USD. January’s Nonfarm Payrolls (NFP) report showed weaker job growth, adding only 143,000 jobs compared to December’s 307,000. Despite this, the Unemployment Rate dropped slightly to 4%, giving the Fed more reason to keep interest rates steady for now.
Meanwhile, US economic data continues to influence market sentiment. Initial Jobless Claims rose to 219K last week, surpassing expectations and the previous week's revised 208K.
This suggests some weakness in the labor market, but Fed officials remain cautious. Chicago Fed President Austan Goolsbee highlighted uncertainty in economic policies, making it harder to predict inflation trends.
Fed Governor Adriana Kugler noted that the economy is still strong, but progress on inflation has been uneven. Minneapolis Fed President Neel Kashkari mentioned that he would support rate cuts only if inflation improves and the labor market remains stable. These factors keep the USD strong, weighing on the AUD/USD pair.
AUD/USD Under Pressure Amid US Tariffs and RBA Rate Cut Expectations
On the AUD front, the Australian Dollar is under pressure after former US President Donald Trump announced a 25% expansion of steel and aluminum tariffs, removing trade agreements with key allies, including Australia.
The White House confirmed that all previous import tax exclusions had been removed and hinted at possible new tariffs on microchips and vehicles.
However, Trump later mentioned that he would consider exempting Australia from the steel tariffs, citing the trade deficit between the two countries. In response, Australian Trade Minister Don Farrell stated that Australia is actively seeking an exemption, similar to the one granted in 2018.
This uncertainty in trade policies has weighed on the AUD/USD pair, as investors fear a negative impact on Australia's economy.
Meanwhile, the Australian economy is facing mixed signals. The Westpac Consumer Confidence index edged up slightly by 0.1% in February, but overall confidence remains weak due to concerns over household finances and the rising cost of living.
Moreover, traders are now expecting the Reserve Bank of Australia (RBA) to cut interest rates at its next meeting, with a 95% probability of a reduction from 4.35% to 4.10%. The expectation of lower rates has pressured the AUD further.
On the global front, China’s Consumer Price Index (CPI) showed some improvement, rising 0.5% year-on-year in January. However, it missed monthly growth expectations, adding to uncertainties, as China is Australia’s largest trading partner and a key driver of the Australian Dollar.
AUD/USD – Technical Analysis
The Australian Dollar (AUD/USD) is facing downward pressure, trading at $0.62745, down 0.01% over the last 24 hours. The pair remains near its pivot point at $0.62606, struggling to find directional momentum as market participants assess broader macroeconomic trends and U.S. dollar strength.
From a technical standpoint, immediate resistance is located at $0.63014, followed by $0.63303 and $0.63612. A break above $0.63014 could spark further upside, especially if buying pressure builds above the 50-day EMA at $0.62422. A decisive close above $0.63303 would indicate a shift toward bullish sentiment, paving the way for a recovery.
On the downside, immediate support sits at $0.62322, with additional cushions at $0.62043 and $0.61711. A drop below $0.62322 may trigger increased selling pressure, potentially pushing AUD/USD toward the lower supports. If the pair breaks below $0.62043, it could signal a deeper correction.
Traders should watch for a break above $0.63014 to confirm bullish sentiment. However, failure to hold above $0.62606 could shift momentum back in favor of sellers, leading to a potential test of lower support levels.
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