AUD/USD Price Forecast: Faces rejection near 50-day SMA amid trade war fears, dismal Chinese data

The AUD/USD pair kicks off the new week on a weaker note and reverses Friday's positive move to the 0.6330 area, marking the highest level since December 18 and coinciding with the 50-day Simple Moving Average (SMA). The downtick is sponsored by the risk-off impulse, which assists the safe-haven US Dollar (USD) to stage a goodish recovery from over a one-month low and tends to undermine the risk-sensitive Aussie. US President Donald Trump decided to impose 25% tariffs on Colombian imports after Colombia's government blocked two US deportation flights. The move fueled uncertainty about Trump's trade policies and revived trade war fears, which, in turn, tempers investors' appetite for riskier assets. 

Moreover, the official data released earlier this Monday showed that China's manufacturing activity unexpectedly contracted in January and the growth in the non-manufacturing sector also slowed significantly. In fact, China's official Manufacturing PMI fell to 49.1 during the reported month and the gauge for the services sector fell to 50.2 from 52.2 in December. This suggested that the recent stimulus measures provided only brief support to local businesses and did little to ease concerns about the gloomy outlook for the world's second-largest economy. Adding to this, rising bets for a rate cut by the Reserve Bank of Australia (RBA) next month contribute to the offered tone surrounding the Australian Dollar (AUD). 

Meanwhile, the White House confirmed on Monday that Colombia has agreed to all of Trump’s terms, including unrestricted acceptance of all illegal aliens from Colombia returned from the US. This, however, was offset by the Wall Street Journal (WSJ) report that momentum is growing among Trump’s advisers to place 25% tariffs on Mexico and Canada as soon as February 1, without wanting to wait for any negotiations or talks. This, in turn, does little towards improving the risk sentiment, which, in turn, favors the USD bulls. That said, expectations that the Federal Reserve (Fed) will cut interest rates twice this year and sliding US bond yields might cap the USD, which, in turn, could offer support to the AUD/USD pair.

AUD/USD daily chart

Technical Outlook

From a technical perspective, last week's breakout through a short-term descending trend-channel hurdle favors bullish traders. Moreover, oscillators on the daily chart have been gaining positive traction, suggesting that the path of least resistance for the AUD/USD pair is to the upside. That said, it will still be prudent to wait for a sustained strength beyond the 50-day SMA hurdle, around the 0.6330 area, before positioning for a move towards reclaiming the 0.6400 mark. The upward trajectory could extend further towards the 0.6450 intermediate hurdle en route to the 0.6500 psychological mark.

On the flip side, any further pullback is likely to attract some buyers and remain limited near the ascending channel resistance breakpoint, now turned support, currently around the 0.6245 region. That said, some follow-through selling below the 0.6230 area could make the AUD/USD pair vulnerable to weaken further towards the 0.6200 mark and eventually drop to the 0.6160 area en route to the 0.6130 region, or the lowest level since April 2020 touched earlier this month.