AUD/USD Price Forecast: Bears have the upper hand while below 0.6300 amid trade war fears

AUD/USD struggles to lure buyers amid escalating US-China trade tensions.
The divergent Fed-RBA rate cut bets contribute to keeping a lid on the pair.
Traders now look to Fed Chair Jerome Powell’s testimony for a fresh impetus.

Haresh Menghani FXStreet

The AUD/USD pair attracts some dip-buying near the 0.6235 area on Monday and builds on its steady intraday ascent through the early European session. Spot prices, however, remain below the 0.6300 mark and might struggle to attract any meaningful buyers in the wake of escalating US-China trade tensions. In fact, the additional US levy on China went into effect last week, while China's retaliatory tariffs on some US exports kicked off this Monday.

Adding to this, US President Donald Trump said on Sunday that he will announce additional 25% tariffs on steel and aluminum imports into the US, and will also announce reciprocal duties over what he sees as unfair trading practices. This, in turn, sparks concerns about a global trade war, which acts as a tailwind for the safe-haven US Dollar (USD) and might hold back bulls from placing aggressive bets around the perceived riskier Australian Dollar (AUD).

Against the backdrop of Friday's mostly upbeat US employment details, expectations that Trump's protectionist policies would boost inflation in the US and limit the scope for the Federal Reserve (Fed) to ease further favor the USD bulls. The US Nonfarm Payrolls report showed that the Unemployment Rate unexpectedly dipped to 4.0% from 4.1% in January and Average Hourly Earnings rose more than estimated, by 4.1% during the reported month.

Meanwhile, the headline print showed that the US economy added 143K jobs in January vs the 170K forecast, though was largely offset by an upward revision of the previous month's reading to 307K. Traders were quick to react and are now pricing in the possibility of just a 36 basis point rate cut by the Fed this year. In contrast, the Reserve Bank of Australia (RBA) is anticipated to cut interest rates next Tuesday, which, in turn, warrants caution for the Aussie bulls.

The fundamental backdrop makes it prudent to wait for strong follow-through buying before positioning for an extension of the AUD/USD pair's recent recovery from sub-0.6100 levels, or the lowest level since April 2020 touched last week. The focus now shifts to Fed Chair Jerome Powell's congressional testimony on Tuesday and Wednesday. This, along with the US consumer inflation figures on Wednesday, will influence the buck and the AUD/USD pair.

AUD/USD daily chart

Technical Outlook

Oscillators on the daily chart support prospects for additional gains. That said, the recent repeated failures near the 50-day Simple Moving Average (SMA) make it prudent to wait for a move beyond the 0.6300 mark before placing fresh bullish bets. The AUD/USD pair might then accelerate the positive move towards the 0.6365-0.6370 intermediate hurdle en route to the 0.6400 mark and the 100-day SMA barrier, currently pegged near the 0.6455 region. Some follow-through buying beyond the latter will suggest that spot prices have bottomed out and pave the way for a further near-term appreciating move.

On the flip side, the Asian session low, around the 0.6235 region, now seems to act as an immediate support, below which the AUD/USD pair could slide to sub-0.6200 level. The downward trajectory could extend further towards the 0.6145-0.6140 area en route to the multi-year low, around the 0.6090-0.6085 region. Spot prices might eventually drop to the 0.6000 psychological mark before aiming to test the April 2020 swing low, around the 0.5980 zone.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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