The Australian Dollar (AUD) slipped against the US Dollar (USD) on Wednesday, pressured by growing global risk aversion and heightened trade tensions following policy shifts by former US President Donald Trump. The market remains cautious as investors assess the impact of escalating trade disputes and economic uncertainty in China, Australia’s largest trading partner.
Trade Tensions and Economic Concerns Weigh on AUD
Australian Prime Minister Anthony Albanese ruled out retaliatory tariffs against the United States, emphasizing that such measures would only increase costs for Australian consumers and fuel inflation. His comments followed Trump’s decision to impose a 25% tariff on all imported steel and aluminum, a move that has intensified concerns over a prolonged trade conflict.
Beyond US-Australia trade relations, the AUD is also under pressure from persistent economic challenges in China. Investors are closely watching Beijing for policy signals, particularly as China struggles with deflationary risks that could dampen demand for Australian exports.
RBA Policy and Market Outlook
Despite the broader economic uncertainty, the Reserve Bank of Australia (RBA) has signaled a cautious approach to monetary policy. Last week’s stronger-than-expected economic growth data dampened expectations of further interest rate cuts, marking the first acceleration in GDP growth in over a year. The latest RBA Meeting Minutes reiterated that February’s rate cut does not necessarily indicate a prolonged easing cycle.
Investors are now turning their attention to the US Consumer Price Index (CPI) data, set for release later on Wednesday, which could provide fresh insights into inflation trends and influence USD movements. With the Federal Reserve in its blackout period ahead of its March 19 meeting, central bank commentary will be limited, keeping markets focused on upcoming economic indicators.
USD Strengthens Amid Market Uncertainty
The US Dollar Index (DXY), which measures the greenback against a basket of major currencies, edged higher around 103.50, reflecting cautious investor sentiment. However, concerns over a potential US economic slowdown have tempered the dollar’s upside.
Trump briefly announced plans to double tariffs on Canadian steel and aluminum to 50% before reversing course, though his administration confirmed that new 25% tariffs on all imported steel and aluminum will take effect as planned. This decision is expected to strain trade relations with key US partners, including Canada and Mexico.
Meanwhile, the Federal Reserve has maintained a steady stance despite rising uncertainties. Fed Chair Jerome Powell reassured markets that there is no immediate need for policy adjustments, while San Francisco Fed President Mary Daly echoed concerns about trade uncertainty but stopped short of advocating rate cuts.
Adding to global trade concerns, RBA Deputy Governor Andrew Hauser warned that trade uncertainty is at a 50-year high, noting that businesses and households may delay investment decisions amid uncertainty surrounding Trump’s tariffs.
China’s Trade Measures Escalate Global Tensions
Trade relations between China and the US remain tense, with reports indicating a deadlock in negotiations. Chinese officials have stated that the US has not provided clear guidelines on fentanyl measures necessary for tariff relief, while White House sources suggest no immediate plans for an in-person meeting between the two nations’ leaders.
Further escalating tensions, China announced retaliatory tariffs against Canada, imposing a 100% duty on Canadian rapeseed oil, oil cakes, and peas, along with a 25% levy on aquatic products and pork. The new tariffs, set to take effect on March 20, come in response to Canada’s own measures introduced in October, highlighting a growing divide in global trade relations.
Technical Analysis: AUD/USD Faces Resistance at 0.6300
The AUD/USD pair is trading near 0.6290, testing immediate resistance at the nine-day Exponential Moving Average (EMA) of 0.6294. The pair remains below this level, signaling weakening short-term momentum. Additionally, the 14-day Relative Strength Index (RSI) hovers just below 50, reinforcing a bearish outlook.
On the downside, AUD/USD could revisit the five-week low of 0.6187, recorded on March 5. A break above the 50-day EMA at 0.6306 could strengthen the pair’s momentum, potentially pushing it toward the three-month high of 0.6408, last seen on February 21.
Overall, market sentiment remains cautious, with global trade tensions and economic uncertainties dictating the near-term trajectory of the Australian Dollar.
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