AUD/USD Price Forecast: Next on the upside remains 0.6300

The US Dollar (USD) has started the week on a positive foot, extending last week’s recovery and encouraging the US Dollar Index (DXY) to advance further north of the 108.00 hurdle.

The Aussie ignores tariffs and USD buying

Surprisingly, the Australian dollar (AUD) outperformed its risk-related peers, prompting AUD/USD to post decent gains, coming in just short of the 0.6300 hurdle once again. It is worth recalling that the pair kept its recovery mode well in place after dropping below 0.6100 just a week ago, a region last seen back in April 2020.

Trade turbulence and tariff tensions

Trade dynamics have been especially unpredictable lately. While President Donald Trump’s decision to delay a 25% tariff on Canadian and Mexican imports by a month offered a brief boost for riskier assets, fresh threats of further tariffs to be announced in the short-term horizon lent extra wings to the Greenback as of late.

On another end, when the US slapped a 10% tariff on Chinese imports, concerns about potential retaliation from Beijing surged. This development is particularly worrying for Australia since China is its largest export market. With hints that Beijing might challenge these tariffs at the World Trade Organization (WTO), there's growing anxiety that demand for Australia’s resource exports could take a hit.

Inflation, Fed policy and what lies ahead

In the meantime, while the US Dollar has regained part of the ground lost during the first half of last week, the threat of a full-blown trade war still looms. Such tensions could drive up inflation in the US, pushing the Federal Reserve (Fed) to keep interest rates high for a longer period.

Meanwhile, all eyes are on the Reserve Bank of Australia (RBA). Recent data suggests that inflationary pressures in Australia are easing—a glance at the Q4 Consumer Price Index (CPI) shows a yearly increase of 2.5%, down from 2.8% in the previous quarter. More strikingly, the trimmed mean CPI, a key gauge for the RBA, has dropped to a three-year low of 3.2%. This has led many to expect a 25 basis point rate cut at the upcoming meeting on February 18, with the possibility of further easing over the next year.

Commodities lend a helping hand

On the commodities front, even though weaker Chinese demand has traditionally weighed on Australian exports like iron ore and copper, prices for these key resources have bounced back in the last few days. This recovery has provided extra support for the Aussie, helping to cushion against potential downturns and offering a ray of optimism amid broader uncertainties.

Technical snapshot

From a technical perspective, investors should remain cautious. For AUD/USD, a crucial support level is at 0.6087—the lowest we've seen this year. If the pair falls below this, it might quickly slide toward 0.6000. On the upside, resistance is present around 0.6330, with a tougher barrier at 0.6549, which was the weekly high back on November 25.

While the Relative Strength Index (RSI) has nudged above 54, hinting at some bullish momentum, the Average Directional Index (ADX) has dropped to around 18, suggesting that the current trend might be losing steam.

AUD/USD daily chart

What’s Next?

Looking ahead, there’s a busy week of data releases on the horizon:

- February 11: Westpac’s Consumer Confidence gauge and NAB’s Business Confidence index.

- February 12: Data on Home Loans and Investment Lending for Homes.

- February 14: The Melbourne Institute will release its Consumer Inflation Expectations.