The Australian Dollar (AUD) remained under pressure against the US Dollar (USD) for a third consecutive day on Monday, as escalating trade tensions and shifting monetary policy expectations dampened risk appetite. The AUD/USD pair faced downward momentum after former US President Donald Trump announced plans to impose a 25% tariff on all steel and aluminum imports, though he did not specify the affected countries.
Trump also indicated that additional reciprocal tariffs would be unveiled by midweek and implemented almost immediately, matching the tariff rates imposed by each country, according to Reuters.
In response, Australian Trade Minister Don Farrell defended the country’s exports, stating, “Australian steel and aluminum support thousands of well-paying American jobs and are vital to our shared defense interests.” Farrell is seeking a tariff exemption similar to the one Australia secured in 2018.
The Australian Dollar also weakened due to concerns over US-China trade tensions, given Australia’s close economic ties with China. A new US levy on Chinese imports took effect last week, while China’s retaliatory tariffs on certain US exports began Monday. Despite earlier reports of a potential phone call between Trump and Chinese President Xi Jinping to discuss trade issues, the discussion was reportedly canceled, though hopes remain for future negotiations.
RBA Rate Cut Expectations Weigh on AUD
Traders are increasingly confident that the Reserve Bank of Australia (RBA) will cut its 4.35% cash rate at its February meeting. Market expectations suggest a 95% probability of a reduction to 4.10%, following data showing that underlying inflation has moderated faster than the RBA anticipated. Several major Australian banks have moved their forecasts for the first rate cut from May to February in response.
US Dollar Strengthens Amid Fed’s Cautious Stance
The US Dollar Index (DXY), which measures the Greenback’s value against a basket of six major currencies, climbed above 108.00. The USD received support as the Federal Reserve (Fed) signaled a cautious approach to interest rates, following a mixed US jobs report.
January’s Nonfarm Payrolls (NFP) increased by 143,000, falling short of the market expectation of 170,000 and well below December’s revised figure of 307,000. However, the Unemployment Rate edged down to 4% from 4.1%.
Meanwhile, Initial Jobless Claims rose to 219,000 for the week ending January 31, surpassing estimates of 213,000 and exceeding the previous week’s revised figure of 208,000.
Federal Reserve officials expressed differing views on the economic outlook. Chicago Fed President Austan Goolsbee warned that inconsistent government policy creates uncertainty, complicating the Fed’s inflation assessment. Fed Board of Governors member Adriana Kugler acknowledged steady economic growth but described progress toward inflation targets as uneven. Minneapolis Fed President Neel Kashkari stated that further rate cuts could be considered if inflation data remains favorable and the labor market stays resilient.
China’s Inflation Data and Impact on AUD
China’s Consumer Price Index (CPI) grew 0.5% year-over-year in January, up from 0.1% in December and surpassing forecasts of 0.4%. Monthly CPI inflation rose 0.7%, though it fell short of the anticipated 0.8%.
Meanwhile, China’s Producer Price Index (PPI) declined 2.3% year-over-year, in line with December’s drop but weaker than the forecasted 2.1% decrease.
Technical Outlook: AUD/USD Faces Key Support
The AUD/USD pair hovered near 0.6250 on Monday, testing the 14-day Exponential Moving Average (EMA). A break below this level could accelerate downside momentum. The 14-day Relative Strength Index (RSI) remained near 50, indicating a potential shift in trend direction.
Immediate support is at 0.6253 (14-day EMA), with a decisive break below potentially pushing the pair toward 0.6087, the lowest level since April 2020. On the upside, AUD/USD may target resistance around 0.6330, last seen on January 24.
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