The Australian Dollar (AUD) continues its losing streak, having depreciated for six consecutive days as of Friday. The latest pressure on the currency follows US President Donald Trump’s reaffirmation of his proposed tariffs on Mexican, Canadian, and Chinese goods, set to take effect on March 4. These tariffs, including a new 10% duty on Chinese imports, add to the uncertainty surrounding global trade, which negatively affects risk-sensitive currencies like the AUD, particularly due to Australia’s close economic ties with China.
Compounding the downward pressure on the AUD, Australia’s Private Capital Expenditure data for Q4 2024 showed a disappointing contraction of 0.2%, missing market expectations for a 0.8% growth. This was a stark contrast to the revised 1.6% expansion in the previous quarter, adding to concerns about Australia’s economic outlook.
In addition, the Reserve Bank of Australia’s (RBA) Deputy Governor Andrew Hauser emphasized that while there might be positive developments on inflation, the tightness in the labor market continues to pose challenges. This sentiment comes on the heels of the RBA’s recent decision to lower the Official Cash Rate by 25 basis points to 4.10%, marking the first rate cut in four years.
Global developments are also impacting the AUD. The US Dollar Index (DXY) saw gains following the release of US GDP data, which showed a 2.3% annualized expansion in Q4 2024, aligning with market expectations. US Federal Reserve officials are also signaling that interest rates should remain at current levels, which is further strengthening the USD.
The heightened risks of a trade war between the US and China, driven by Trump’s tariff threats, are central to the bearish outlook for the Australian Dollar. The AUD faces significant downside risks if tensions between the US and China escalate, as the two countries are major trading partners for Australia.
Looking at the technicals, AUD/USD is testing the 0.6200 support level. A break below this could send the pair towards its lowest level since April 2020, at 0.6087. On the upside, resistance levels are seen at the nine-day EMA around 0.6297 and the 14-day EMA at 0.6302. Any rally above these levels could strengthen the short-term bullish momentum and challenge the two-month high at 0.6408 reached on February 21.
As the market navigates the ongoing geopolitical and economic uncertainties, the Australian Dollar’s performance will largely depend on developments in global trade relations, the trajectory of US tariffs, and domestic economic data.
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