The Australian Dollar is experiencing a decline against the US Dollar as concerns over trade tensions escalate. The recent announcement by US President Trump to impose a 25% tariff on all steel and aluminum imports, without specifying affected countries, has added to the downward pressure on the AUD. This decision coincides with the implementation of retaliatory tariffs by China on certain US goods, raising alarms given Australia’s strong economic ties with China.
The AUD/USD pair has seen a sustained downward trend as market participants react to these developments. Speculation has been rife following discussions between Trump and Chinese President Xi Jinping about potential negotiations, but a scheduled phone call between the two leaders was reportedly canceled, dampening hopes for a resolution. Meanwhile, traders have factored in significant expectations for a reduction in the cash rate by the Reserve Bank of Australia, with a 95% likelihood of a decrease from 4.35% to 4.10% anticipated at the February meeting. This follows indications of softer inflation, which have prompted some banks to adjust their forecasts for monetary policy.
On the other hand, the US Dollar has gained traction, supported by a recent employment report showing slower job growth alongside a decrease in the unemployment rate. The US Dollar Index has risen above 108.00, reflecting overall strength in the Greenback. January saw only 143,000 jobs added, falling short of market expectations, though the unemployment rate improved, dropping to 4%.
In China, inflation data revealed a Consumer Price Index (CPI) increase of 0.5% year-over-year in January, surpassing projections, although the Producer Price Index (PPI) declined by 2.3%. This mixed economic backdrop contributes to the growing uncertainty surrounding trade dynamics and monetary policy both in Australia and the US.
From a technical standpoint, the AUD/USD pair is currently hovering near 0.6250, grappling with the 14-day Exponential Moving Average. A breach below this level could signal a bearish shift, potentially pushing the pair toward 0.6087, marking a significant low not seen since April 2020. Conversely, if the pair manages to break through resistance levels, it could test highs around 0.6330, which were last observed in late January.
