The Australian Dollar (AUD) continues to slide against the US Dollar (USD) for the third consecutive session, facing mounting challenges from rising global risk sentiment. Investors are now looking ahead to Australia’s monthly inflation report on Wednesday, which could provide vital insights into the future direction of monetary policy after the Reserve Bank of Australia’s (RBA) recent hawkish rate cut.
The primary catalyst for AUD’s weakness comes from escalating global risks, notably President Donald Trump’s announcement on Monday that sweeping US tariffs on imports from Canada and Mexico will go ahead once a month-long delay expires next week. The tariffs, which include a reciprocal approach to taxing imports, have heightened concerns over global trade tensions, putting pressure on risk-sensitive currencies like the AUD.
Despite this, the Australian Dollar has received some support from positive developments in China, Australia’s key trading partner. Over the weekend, China released its 2025 annual policy statement, outlining strategies for rural reforms and revitalizing the property market. State-supported developers have also increased land purchases at premium prices, bolstered by the government’s decision to relax home price restrictions.
On the other side, the US Dollar has faced its own challenges. The US Dollar Index (DXY), which measures the USD against six major currencies, has fallen below 106.50, weighed down by weak US economic data. Recent reports, including Jobless Claims and the S&P Global Purchasing Managers’ Index (PMI), painted a gloomy picture of the US economy, which has also added pressure to the greenback.
Despite these challenges, US economic conditions remain uncertain, with Fed officials like Governor Adriana Kugler commenting that inflation is still far from reaching the Fed’s 2% target. The Federal Reserve has stressed the need for further evaluation of the economy, the labor market, and inflation before deciding on any potential rate cuts. This has left market participants watching closely for clearer signs of inflation moderation before any policy changes are made.
As for the Australian Dollar, technical analysis shows the AUD/USD trading near 0.6340, testing a nine-day Exponential Moving Average (EMA) barrier at 0.6343. If the pair breaks above this level, it could shift the market’s bias toward the upside, potentially targeting the psychological resistance level at 0.6400, with a further hurdle at 0.6440, the upper boundary of the ascending channel. On the downside, immediate support is seen at the 14-day EMA of 0.6329, aligning with the lower boundary of the channel.
In summary, the AUD faces a tug-of-war between domestic economic conditions, global risk sentiment, and upcoming data, particularly Australia’s inflation report. The US’s trade policies and economic outlook also continue to exert influence on the broader currency markets, leaving the AUD vulnerable in the short term.
Related topics:
Bitcoin Underperforms as Gold and S&P 500 Reach New Highs
