The Australian Dollar (AUD) remained stable on Wednesday following losses in the previous session, as market participants adopted a cautious stance ahead of the US Federal Reserve’s (Fed) interest rate decision later in the day. The AUD/USD pair held firm as the US Dollar (USD) retained strength, buoyed by stable Treasury yields and ongoing economic uncertainty.
Australia’s Economic Resilience and Policy Stance
Australia’s Westpac Leading Economic Index maintained a steady 0.1% month-over-month growth in February, mirroring the previous month’s pace. The six-month annualized growth rate, which predicts economic trends, rose to 0.8% from 0.6% in January, indicating resilience in the domestic economy.
In a speech on Tuesday, Treasurer Jim Chalmers criticized the US administration’s trade policies, labeling them as “self-defeating and self-sabotaging.” He expressed disappointment over Australia’s exclusion from steel and aluminum tariff exemptions, calling the decision “senseless and wrong.” Meanwhile, Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter reaffirmed the central bank’s cautious approach to rate cuts, stressing the need to monitor US policy shifts and their potential impact on inflation.
Fed Decision Looms Over Currency Markets
The US Dollar Index (DXY) hovered near 103.40, supported by expectations that the Fed will maintain its current rate stance. However, weak US economic data and renewed trade tensions under President Donald Trump created uncertainty. February’s US Retail Sales data underperformed expectations, rising only 0.2% month-over-month compared to the anticipated 0.7%, further fueling speculation about the Fed’s next move.
Geopolitical developments also influenced market sentiment. Trump and Russian President Vladimir Putin reportedly agreed to a temporary halt on attacks against energy infrastructure in the Ukraine war, but broader ceasefire talks remain unresolved. Additionally, Trump reaffirmed plans to impose reciprocal tariffs on April 2, with no exemptions for steel and aluminum, a move that could impact global trade.
China’s Economic Stimulus and AUD/USD Outlook
China, Australia’s largest trading partner, introduced a stimulus plan to boost consumer spending and stabilize financial markets. Stronger-than-expected Chinese economic data, including a 4.0% year-over-year rise in retail sales and a 5.9% increase in industrial production, could provide further support to the AUD.
Technically, AUD/USD remains in an upward trend, trading around 0.6360. Resistance is seen at 0.6408, a three-month high reached on February 21. A breakout above this level could push the pair toward 0.6490, while key support lies at 0.6334 and 0.6312. A drop below these levels could expose the AUD/USD to further downside, with the next major support at 0.6187.
As global markets brace for the Fed’s decision, the Australian Dollar’s trajectory will depend on central bank policies, trade developments, and China’s economic outlook.
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