- AUD/USD attracts some sellers following an intraday uptick to a fresh weekly high.
- A modest USD uptick and escalating US-China trade war exert pressure on the pair.
- The divergent Fed-RBA outlook warrants caution for bears ahead of the US PPI print.
The AUD/USD pair retreats after hitting a fresh weekly high, around the 0.6335 region on Thursday and for now, seems to have snapped a two-day winning streak. After imposing a blanket 10% tariff on all Chinese goods in February, US President Donald Trump hiked the rate to 20% earlier this month. In retaliation, China announced its own levies of up to 15% on some US goods, raising the risk of a trade war between the world's two largest economies. This comes on top of a weakening Chinese economy and turns out to be a key factor weighing on the Australian Dollar (AUD).
The US Dollar (USD), on the other hand, ticks higher and looks to build on the overnight bounce from its lowest level since October 16. This exerts additional downward pressure on the AUD/USD pair and drags it back below the 0.6300 mark during the first half of the European session. Any meaningful USD appreciation, however, seems elusive in the wake of expectations that a tariff-driven slowdown in the US, along with signs of a cooling labor market and easing inflationary pressures, should allow the Federal Reserve (Fed) to cut interest rates several times this year.
In fact, the markets are now pricing in the possibility of three 25-basis-point Fed rate cuts each in June, July, and October. The bets were reaffirmed by a report published by the US Bureau of Labor Statistics (BLS) on Wednesday, which showed that the headline US Consumer Price Index (CPI) eased more than expected, to the 2.8% YoY rate in February from 3% in the previous month. Adding to this, the core gauge, which excludes volatile food and energy prices, rose 3.1% on a yearly basis during the reported month, marking a slowdown from the 3.3% increase registered in January.
In contrast, the Reserve Bank of Australia (RBA) sounded more hawkish on future rate cuts, with governor Michele Bullock dampening expectations for deeper rate cuts in the next few meetings. This, in turn, might hold back the AUD bears from placing aggressive bets and support the AUD/USD pair. Traders now look forward to the release of the US Producer Price Index (PPI), which might influence the USD and provide some impetus to the currency pair. Nevertheless, the aforementioned mixed fundamental backdrop warrants some caution before positioning for deeper losses.
AUD/USD daily chart
Technical Outlook
From a technical perspective, neutral oscillators on the daily chart make it prudent to wait for some follow-through selling below the 0.6275-0.6270 immediate support before positioning for a further depreciating move. The AUD/USD pair might then accelerate the fall towards testing the monthly swing low, around the 0.6185 region, with some intermediate support near the 0.6200 round figure. Acceptance below the latter will be seen as a fresh trigger for bears and drag spot prices further towards the 0.6140 intermediate support en route to the sub-0.6100 levels, or the lowest level since April 2020 touched last month.
On the flip side, the 0.6330-0.6335 area, or the top end of the weekly range, now seems to have emerged as an immediate hurdle. This is followed by the 100-day Simple Moving Average (SMA), currently pegged near the 0.6360-0.6365 region, which coincides with the monthly top and should act as a key pivotal point. A sustained strength beyond should allow the AUD/USD pair to reclaim the 0.6400 round figure. The subsequent move up would shift the near-term bias in favor of bullish traders and pave the way for the resumption of the recent goodish recovery move from a multi-year low touched in early February.
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