The Australian Dollar (AUD) weakened against the US Dollar (USD) on Tuesday as downward pressure mounted on the AUD/USD pair. The decline followed US President Donald Trump’s decision to expand steel and aluminum tariffs by 25%, eliminating trade exemptions for key US allies, including Australia. The White House confirmed that all import tax exclusions had been revoked and hinted at potential further action on microchips and vehicles in the coming weeks.
Economic Sentiment in Australia Remains Fragile
Australia’s Westpac Consumer Confidence edged up slightly by 0.1% in February, reaching 92.2 from 92.1 in January. Despite this marginal increase, overall consumer sentiment remains weak due to persistent concerns over household finances and rising living costs.
Meanwhile, expectations are growing that the Reserve Bank of Australia (RBA) will lower its 4.35% cash rate at its next meeting. Market sentiment now places a 95% probability on a cut to 4.10%, as recent data suggests that inflation is cooling faster than the RBA initially projected. Several major Australian banks have subsequently revised their forecasts, anticipating the first rate cut in February instead of May.
US Dollar Strengthens Amid Fed’s Cautious Stance
The US Dollar Index (DXY), which measures the Greenback against six major currencies, climbed above 108.00 on Tuesday, supported by expectations that the Federal Reserve (Fed) will maintain interest rates at current levels throughout the year.
Friday’s US Nonfarm Payrolls (NFP) report showed a significant slowdown in job growth, with payrolls increasing by just 143,000 in January—well below December’s revised figure of 307,000 and the forecast of 170,000. However, the Unemployment Rate dipped slightly to 4% from 4.1% in December, adding to the Fed’s cautious stance.
Additionally, US Initial Jobless Claims rose to 219,000 for the week ending January 31, exceeding market expectations of 213,000 and the previous week’s revised figure of 208,000.
Fed officials remain divided on the policy outlook. Chicago Fed President Austan Goolsbee emphasized the economic uncertainty stemming from inconsistent government policies, making it difficult for the central bank to gauge inflation trends. Fed Board of Governors member Adriana Kugler acknowledged steady economic growth but noted that progress on inflation has been uneven. Minneapolis Fed President Neel Kashkari stated that he would support further rate cuts only if inflation data continues to improve while the labor market remains strong.
China’s Inflation Data and Its Impact on the AUD
China’s Consumer Price Index (CPI) rose at an annual rate of 0.5% in January, up from 0.1% in December and slightly above the market forecast of 0.4%. On a monthly basis, CPI inflation increased by 0.7%, though it fell short of the expected 0.8% rise. Given Australia’s strong trade ties with China, this data adds another layer of uncertainty to the AUD’s outlook.
Technical Outlook: AUD/USD Faces Key Support Levels
The AUD/USD pair traded near 0.6270 on Tuesday, testing the nine- and 14-day Exponential Moving Averages (EMAs). A break below these levels could weaken short-term price momentum. The 14-day Relative Strength Index (RSI) remains above 50, suggesting a mild bullish bias.
On the upside, the pair could test the eight-week high of 0.6330, last reached on January 24. However, immediate support lies at the nine-day EMA of 0.6264 and the 14-day EMA of 0.6258. A decisive break below these levels could accelerate losses toward 0.6087, the lowest level since April 2020, recorded on February 3.
With trade tensions escalating and monetary policy uncertainty persisting, the Australian Dollar’s outlook remains fragile, hinging on upcoming economic data and global risk sentiment.
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