The Australian Dollar (AUD) weakened against the US Dollar (USD) on Friday, erasing gains from the previous session as risk aversion intensified due to concerns over impending US auto tariffs.
US President Donald Trump escalated trade tensions by signing an order imposing a 25% tariff on auto imports, a move expected to strain relations with key trading partners. This follows his earlier decision to implement reciprocal tariffs set to take effect on April 2.
RBA Policy Outlook and Market Expectations
A Reuters poll indicates that the Reserve Bank of Australia (RBA) will hold its cash rate at 4.10% on April 1, with all 39 surveyed economists in agreement. However, expectations for rate cuts remain strong, with the median forecast predicting two 25 basis point reductions in May and September 2025, lowering the rate to 3.60% by Q3.
Goldman Sachs has adjusted its projection, shifting its anticipated rate cut from April to May. Meanwhile, Westpac economists see the April meeting as a “dead rubber” but maintain their forecast for a rate cut in May, contingent on Q1 inflation data. The RBA is expected to proceed cautiously with rate reductions due to persistently high core inflation (3.2%), low unemployment, and steady economic growth.
Australian Election and Economic Forecasts
Prime Minister Anthony Albanese announced that the national election will be held on May 3, kicking off a five-week campaign likely to focus on cost-of-living issues. While Labor secured a majority in 2022, recent polls suggest a tight race against the opposition Liberal-National coalition, with smaller party votes playing a crucial role.
Treasurer Jim Chalmers unveiled the 2025/26 budget, which includes tax cuts totaling A$17.1 billion. The budget projects a deficit of A$27.6 billion for 2024-25 and A$42.1 billion for 2025-26, with GDP growth expectations set at 2.25% in 2026 and 2.5% in 2027.
Global Market Trends and USD Strength
The US Dollar Index (DXY) hovers around 104.30, supported by risk aversion, even as US Treasury yields decline—3.99% for the 2-year bond and 4.35% for the 10-year bond. The US economy expanded at an annualized rate of 2.4% in Q4 2024, exceeding the 2.3% forecast. Investors now await the US Personal Consumption Expenditures (PCE) Price Index for further cues on Federal Reserve policy.
Moody’s warned that increased tariffs and tax cuts could significantly widen the US deficit, raising the risk of a debt rating downgrade. S&P Global and Fitch Ratings cautioned that US trade policies may weaken global economic growth, with smaller economies such as Brazil, India, and Vietnam particularly vulnerable.
Federal Reserve officials remain divided on the policy outlook. Boston Fed President Susan Collins highlighted the challenge of balancing restrictive policy with economic risks, while Richmond Fed President Thomas Barkin warned that trade-related uncertainty could force a more cautious approach than markets anticipate.
China’s Economic Moves and Copper Tariff Talks
China is implementing an ambitious plan to enhance its aluminum industry by 2027, led by the Ministry of Industry and Information Technology. President Xi Jinping also met with executives from BMW, Mercedes, and Qualcomm as China seeks to strengthen international business ties amid the US’s shifting trade stance.
Trump hinted at imposing tariffs on copper imports within weeks, despite the Commerce Department’s initial timeline of November 2025 for a decision. This prospect provided some support for the AUD, as Australia is a key copper exporter.
Technical Analysis: AUD/USD Near Key Resistance
The AUD/USD pair trades near 0.6290, facing resistance at the nine-day Exponential Moving Average (EMA) of 0.6304. A breakout above this level could fuel bullish momentum, targeting the monthly high of 0.6391 and a three-month peak of 0.6408.
However, failure to sustain gains may push the pair back into a descending channel, with downside risks toward the seven-week low of 0.6187 and further support at 0.6170. The 14-day Relative Strength Index (RSI) remains below 50, signaling persistent bearish pressure.
Overall, the Australian Dollar remains vulnerable to global trade tensions and shifting market expectations surrounding the RBA and Federal Reserve rate policies.
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