The Australian Dollar (AUD) ended a six-day losing streak on Monday, buoyed by a softer US Dollar (USD) following the release of the US Personal Consumption Expenditures (PCE) inflation report. The data aligned with market expectations, easing fears of an unexpected spike in US inflation.
Australian Inflation Slows as RBA Rate Cut Takes Effect
Australia’s TD-MI Inflation Gauge fell by 0.2% in February, reversing January’s 0.1% increase — the first decline since August. The data signals a cooling inflation trend following the Reserve Bank of Australia‘s (RBA) recent decision to cut interest rates by 25 basis points to 4.1% in its first policy meeting of the year. On an annual basis, inflation rose by 2.2%, slightly below the previous 2.3% reading.
Chinese Economic Data Lifts AUD
The AUD also gained momentum from upbeat Chinese data, as China’s Caixin Manufacturing Purchasing Managers’ Index (PMI) climbed to 50.8 in February, exceeding market expectations of 50.3. Stronger Chinese demand supports Australia’s export-driven economy, given China’s status as its largest trading partner.
US-China Trade Tensions Cap Upside Potential
Despite the positive economic backdrop, the AUD’s upside may be capped by escalating US-China trade tensions. Former US President Donald Trump announced an additional 10% tariff on Chinese imports over the weekend, set to take effect on Tuesday, while reaffirming plans for 25% tariffs on Canadian and Mexican goods starting March 4. The heightened trade risks have fueled uncertainty in global markets, weighing on risk-sensitive currencies like the AUD.
Technical Outlook: AUD/USD Tests Key Support
The AUD/USD pair traded around 0.6220 on Monday, hovering near the critical 0.6200 support level. The pair remains below the nine- and 14-day Exponential Moving Averages (EMAs), signaling weakening short-term momentum. The 14-day Relative Strength Index (RSI) remains below 50, reinforcing the bearish outlook.
A break below 0.6200 could trigger a decline toward the February low of 0.6087 — the weakest level since April 2020. Conversely, initial resistance is seen at 0.6280 (nine-day EMA), followed by 0.6290 (14-day EMA). A sustained move above these levels could lift the pair toward the February high of 0.6408.
Market participants will closely monitor US economic data and geopolitical developments for further directional cues.
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