The Australian Dollar (AUD) strengthened on Monday, recovering losses from the past two trading sessions against the US Dollar (USD). This rebound was largely driven by concerns about a potential slowdown in the US economy, which has raised doubts about the US dollar’s strength.
Support for the AUD was further bolstered by stronger-than-expected GDP growth and trade data from Australia, released last week. The Reserve Bank of Australia (RBA) also provided some positive momentum, as the latest Meeting Minutes indicated a cautious stance on further interest rate cuts. The minutes clarified that the February rate reduction should not be interpreted as a commitment to ongoing easing measures.
However, the AUD faced some downward pressure following the release of disappointing Chinese Consumer Price Index (CPI) data for February, which could have implications for Australia due to its close trade ties with China. On top of this, China imposed new tariffs on Canadian products, escalating trade tensions between the two nations. The tariffs, including a 100% levy on Canadian rapeseed oil, will take effect on March 20 and are a response to Canada’s imposition of tariffs last October.
The US Dollar Index (DXY), which measures the USD against six major currencies, has been weakening for the fifth consecutive day, hovering around 103.80. While the US dollar is under pressure, this decline could be limited as US Treasury yields continue to rise.
The US Nonfarm Payrolls (NFP) report for February showed a disappointing increase of 151,000 jobs, below the anticipated 160,000, with January’s numbers revised downward to 125,000. The weaker-than-expected job growth contributed to growing concerns over the health of the US economy. San Francisco Fed President Mary Daly acknowledged that uncertainty among businesses could dampen demand but stated that this does not yet warrant a change in interest rates.
Meanwhile, US Secretary of Commerce Howard Lutnick confirmed that the 25% tariffs on steel and aluminum imports, due to take effect Wednesday, will likely not be postponed, despite some concerns from businesses reliant on these materials.
In Australia, economic indicators remained solid. The country’s GDP grew by 0.6% in Q4 2024, surpassing the previous quarter’s growth of 0.3% and exceeding market expectations of 0.5%. On an annual basis, GDP expanded 1.3%, up from 0.8% in the prior quarter. Australia’s trade surplus also rose to 5,620 million AUD in January, driven by a 1.3% rise in exports, particularly non-monetary gold.
The Australian Bureau of Statistics reported a decline in imports by 0.3%, following a sharp 5.9% increase in the previous month, further bolstering the trade outlook. However, RBA Deputy Governor Andrew Hauser warned that the current global trade uncertainty, particularly due to US tariffs, could lead businesses and households to delay investments and planning, potentially weighing on future economic growth.
China’s February CPI report indicated a 0.7% year-over-year decline, exceeding market expectations of a 0.5% drop. This marked the first instance of consumer deflation since January 2024, driven by weakening seasonal demand post-Spring Festival. Meanwhile, China’s Producer Price Index (PPI) showed a 2.2% year-over-year decline, slightly worse than expected, signaling continued pressure on the Chinese economy.
Technical Analysis
The AUD/USD is trading near 0.6320 on Monday. Technical indicators suggest a strengthening of short-term momentum, with the pair holding above the nine-day Exponential Moving Average (EMA). The Relative Strength Index (RSI) remains above 50, reinforcing a bullish outlook. Immediate resistance is seen at 0.6400, followed by the three-month high of 0.6408. On the downside, support is at 0.6301, with a break below this level potentially triggering further declines towards the five-week low of 0.6187.
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