The Australian Dollar (AUD) remained under pressure against the US Dollar (USD) on Monday after US President Donald Trump confirmed new reciprocal and sectoral tariffs set to take effect on April 2. The tariffs, which include duties on steel, aluminum, and autos, come without exemptions and are expected to add strain to Australia’s trade outlook.
However, the AUD/USD pair found support following the release of China’s latest economic data. Traders now turn their attention to upcoming US Retail Sales data for further direction.
China’s Economic Data and Stimulus Plan Support AUD
China’s retail sales grew 4.0% year-over-year in the January-February period, improving from December’s 3.7% increase. Additionally, industrial production rose 5.9% YoY, surpassing the 5.3% forecast but slightly below the previous 6.2% reading.
Investor sentiment toward the Australian Dollar improved after China unveiled a special action plan aimed at reviving domestic consumption. The initiative includes measures to boost wages, increase household spending, and stabilize stock and real estate markets. Given Australia’s strong trade ties with China, positive developments in Chinese economic policy often provide tailwinds for the AUD.
US Dollar Faces Pressure Ahead of Fed Decision
The US Dollar Index (DXY) hovered around 103.80 as the greenback struggled amid concerns over economic growth and softer consumer sentiment. On Friday, the University of Michigan’s Consumer Sentiment Index fell to 57.9, its lowest level since November 2022, down from 64.7. Meanwhile, inflation expectations for the next five years rose to 3.9% from 3.5% in February, fueling speculation over the Federal Reserve’s next move.
With the Fed set to announce its policy decision on Wednesday, markets widely expect interest rates to remain unchanged. However, traders have priced in a 75% probability of a quarter-point rate cut by June, according to the CME FedWatch Tool.
Geopolitical Tensions Add Uncertainty
Geopolitical developments continue to influence market sentiment. Over the weekend, Yemen’s Houthi rebels launched a major missile and drone attack targeting the USS Harry S. Truman and its escorting warships in the Red Sea. The US responded with additional strikes, with Defense Secretary Lloyd Austin stating that operations would continue until the Houthis ceased attacks on shipping.
In financial markets, US Treasury Secretary Scott Bessent attempted to ease concerns over market volatility triggered by Trump’s tariff threats, stating that corrections are “healthy and normal.” Meanwhile, Australian Prime Minister Anthony Albanese confirmed that Australia would not impose retaliatory tariffs on the US, arguing that such measures would only raise consumer costs and fuel inflation.
Technical Outlook: AUD/USD Holds Key Support Levels
The AUD/USD pair traded around 0.6340 on Monday, maintaining a bullish bias after reclaiming its position within an ascending channel on the daily chart. The 14-day Relative Strength Index (RSI) rebounded above 50, reinforcing positive momentum.
Immediate support lies at the nine-day Exponential Moving Average (EMA) of 0.6309, followed by the 50-day EMA at 0.6306. A decisive break below these levels could expose the pair to further downside toward the six-week low of 0.6187, recorded on March 5.
On the upside, the AUD/USD pair could attempt a retest of the three-month high of 0.6408, last reached on February 21. A breakout above this level would strengthen the bullish outlook, potentially driving the pair toward the upper boundary of the ascending channel near 0.6470.
As traders navigate ongoing trade tensions, geopolitical risks, and upcoming Fed and economic data releases, the AUD/USD remains at a pivotal juncture.
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