The Australian Dollar (AUD) held its ground against the US Dollar (USD) on Wednesday, despite facing challenges from geopolitical tensions, US tariff hikes, and concerns surrounding the Federal Reserve’s monetary policy. The AUD/USD pair remains relatively stable, though it has struggled to gain traction amid these uncertainties.
US President Donald Trump’s trade adviser, Peter Navarro, escalated tensions by accusing Australia of “killing the aluminum market” following Trump’s recent decision to impose a 25% tariff on steel and aluminum imports. Australia is now seeking exemptions from these tariffs, with President Trump previously expressing a willingness to consider such requests due to the trade imbalance between the two nations. Australian Trade Minister Don Farrell has also reiterated that Australia is pushing for the same exemption it secured under the Trump administration in 2018.
Geopolitical Risks and Domestic Concerns
Amid growing geopolitical risks, Israeli Prime Minister Benjamin Netanyahu warned late Tuesday that Israel would resume “intense fighting” in Gaza if Hamas did not release hostages by Saturday noon. These developments add to global market volatility, which continues to weigh on the Australian Dollar.
Domestically, there is increasing speculation that the Reserve Bank of Australia (RBA) may cut interest rates further. The central bank, which currently holds a 4.35% cash rate, is widely expected to lower this to 4.10% in its February meeting, as recent economic data suggests underlying inflation is cooling faster than initially projected.
Fed‘s Stance and Rising US Dollar
The US Dollar continues to strengthen, supported by expectations that the Federal Reserve may adopt a more hawkish stance this year. Fed Chair Jerome Powell, in his recent remarks, indicated that the central bank was in no rush to cut interest rates, despite ongoing inflation concerns. Powell also noted that tariffs, particularly those imposed by Trump, could put upward pressure on prices, complicating efforts to reduce rates.
A Reuters poll suggests that the Fed is likely to hold off on rate cuts until next quarter, with many economists revising their forecasts for a potential March rate cut. This outlook, coupled with strong US economic data such as January’s jobs report, has bolstered the US Dollar.
Additionally, Trump’s decision to extend tariffs to all imports, including steel and aluminum, has raised concerns about the future of trade agreements with key US allies, including Australia. The White House has confirmed that all import tax exclusions have been removed and hinted at potential further actions on other sectors like microchips and vehicles.
Technical Outlook for AUD/USD
The AUD/USD pair is trading around the 0.6300 mark, supported by the nine- and 14-day Exponential Moving Averages (EMAs) on the daily chart, signaling stronger short-term momentum. The 14-day Relative Strength Index (RSI) remains above the 50 level, reinforcing a slightly bullish bias for the pair.
Resistance is seen around the eight-week high of 0.6330, last touched on January 24. On the downside, support is at the 0.6275 level (nine-day EMA), followed by the 0.6267 level (14-day EMA). A break below these levels could signal a weakening of short-term price momentum, potentially pushing the pair toward the psychological 0.6200 level.
Key Events to Watch
Market participants are also closely awaiting the US Consumer Price Index (CPI) inflation data, due later today, which could further influence USD price action. With the potential for a hawkish Fed stance and global economic uncertainties, the outlook for the Australian Dollar remains cautious in the near term.
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