The Australian Dollar (AUD) extended its gains for a third consecutive session against the US Dollar (USD) on Friday, despite rising tensions surrounding the ongoing US-China trade dispute. The White House confirmed that US tariffs on Chinese goods have now reached 145%, escalating the trade conflict between the world’s two largest economies. Given Australia’s strong trade ties with China, these developments have sparked concerns for the Australian economy.
The AUD received a boost on Thursday following reports that Australia is preparing to resume trade negotiations with the European Union (EU). Meanwhile, China’s efforts to bolster its trade relationship with the EU were also noted, as discussions were held with EU trade chief Maros Sefcovic about strengthening trade, investment, and industrial cooperation.
In retaliation to US tariffs, China raised tariffs on 84% of American imports and placed six US companies, including aerospace and defense firms, on its trade blacklist. Additionally, China imposed export controls on American companies like American Photonics and BRINC Drones.
US Dollar Weakens Amid Economic Uncertainty
The US Dollar Index (DXY), which measures the greenback against a basket of six major currencies, was trading lower at 100.30 on Friday. The DXY has continued its slide as investors remain concerned about both the US and global economic outlook. Market attention is now focused on the upcoming release of the March US Producer Price Index (PPI) and preliminary Michigan Consumer Sentiment data later on Friday.
Recent US inflation data showed that the Consumer Price Index (CPI) for March eased to 2.4% year-over-year, down from 2.8% in February and below the expected 2.6%. Core CPI, excluding food and energy prices, rose by 2.8%, lower than the 3.1% recorded previously and missing the 3.0% forecast. On a monthly basis, the headline CPI dipped by 0.1%, while core CPI edged up by 0.1%.
To ease trade tensions, President Trump announced a 90-day pause on new tariffs for most US trade partners, reducing tariff rates to 10%. Mark Hackett of Nationwide noted that this move indicates productive negotiations and injects stability into the market, which has been rattled by uncertainty.
Minutes from the Federal Open Market Committee (FOMC) meeting indicated that policymakers are divided on how to manage rising inflation and slowing growth, signaling a “difficult tradeoff” in the months ahead.
China’s Economic Data Shows Weakness
China’s CPI fell by 0.1% year-over-year in March, following a 0.7% drop in February, falling short of the expected 0.1% increase. On a monthly basis, CPI dropped 0.4%, worse than the previous month’s 0.2% decline. Additionally, China’s Producer Price Index (PPI) contracted more sharply than expected, falling by 2.5% annually in March, compared to a 2.2% drop in February.
Australian Economic Outlook and RBA Expectations
In Australia, weakening business and consumer sentiment has led to expectations of a dovish shift from the Reserve Bank of Australia (RBA). Markets are pricing in potential rate cuts totaling up to 100 basis points this year, with the first reduction anticipated in May, followed by possible cuts in July and August.
Technical Outlook: AUD/USD Faces Key Levels
The AUD/USD pair is trading near 0.6230 on Friday, with technical indicators showing a slight bullish bias as the pair holds above the nine-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) remains below the neutral 50 level, signaling that bearish pressure has not fully dissipated.
Immediate support is at the nine-day EMA, around 0.6176. A break below this level could undermine the pair’s short-term bullish momentum, potentially targeting the 0.5914 zone, the lowest level since March 2020, followed by psychological support at 0.5900.
On the upside, initial resistance lies at the 50-day EMA around 0.6262. A sustained move above this level could pave the way for a stronger recovery, potentially pushing the AUD/USD pair towards a four-month high of 0.6408.
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