The Australian Dollar (AUD) remains under pressure against the US Dollar (USD) for the second consecutive day on Friday, with the AUD/USD pair facing headwinds as the USD stabilizes ahead of the highly anticipated Nonfarm Payrolls (NFP) report in the US. Market sentiment is marked by caution as investors await economic data that could shape the future outlook for both currencies.
Australia’s Economic Outlook and Geopolitical Risks Weigh on AUD
The Reserve Bank of Australia (RBA) continues to forecast a slowdown in economic growth, predicting a dip to 2% by 2025. While the central bank’s cautious stance has historically supported the AUD, investors remain wary of potential shifts in monetary policy, particularly in response to inflationary pressures and ongoing labor market developments.
In the wake of these uncertainties, the Australian Dollar received a brief reprieve when US President Donald Trump reversed his stance on tariffs, exempting Mexican and Canadian goods covered by the US-Mexico-Canada Agreement (USMCA) from proposed 25% tariffs. Despite this, the AUD continues to face headwinds, hindered by geopolitical tensions and broader economic concerns.
In terms of economic data, Australia’s Q4 GDP growth surpassed expectations, rising by 0.6% quarter-over-quarter, outpacing the previous quarter’s 0.3% and exceeding the 0.5% forecast. On an annual basis, Australia’s GDP climbed to 1.3%, a noticeable improvement from the 0.8% growth seen in Q3. However, despite these encouraging figures, the Australian Dollar remains constrained, largely due to the broader trade policy uncertainties and global economic pressures.
Geopolitical tensions further exacerbate the situation, particularly with China. A spokesperson for China’s Foreign Ministry warned this week that the country would be prepared for “any type” of war in response to President Trump’s escalating trade tariffs. Given China’s status as Australia’s largest trading partner, this development could exert downward pressure on the Australian Dollar.
US Dollar Steady as Traders Await Nonfarm Payrolls Data
The US Dollar Index (DXY), which tracks the USD against a basket of six major currencies, is trading at around 104.10, showing relative stability as the market prepares for the release of the US Nonfarm Payrolls (NFP) data. Traders are anticipating a modest rebound in US job growth, with projections indicating an increase of 160,000 new jobs in February, up from January’s disappointing 143,000.
Meanwhile, US Initial Jobless Claims for the week ending March 1 came in at 221,000, lower than the anticipated 235,000 and the previous week’s 242,000. Despite the encouraging claims data, the ADP Employment Change report showed a significant miss, with only 77,000 new jobs added in February, far below the forecasted 140,000 and well below January’s 186,000.
The Federal Reserve remains focused on managing inflation while maintaining stability in the labor market, as highlighted by Atlanta Fed President Raphael Bostic. He acknowledged the significant uncertainties surrounding the US economy, particularly in light of President Trump’s trade policies. This backdrop of economic flux has added weight to Friday’s NFP report, as investors closely monitor its implications for future Federal Reserve actions.
Australia’s Trade and Economic Indicators Show Mixed Signals
Australia’s trade balance showed positive momentum in January, with the trade surplus rising to 5.62 billion AUD, exceeding the expected 5.5 billion. Exports grew by 1.3%, driven by a surge in non-monetary gold, while imports declined by 0.3%. Additionally, building permits saw a strong uptick in January, rising 6.3% month-over-month, signaling potential growth in the construction sector.
However, the Judo Bank Composite Purchasing Managers’ Index (PMI) showed a slowdown in business activity, dipping to 50.6 in February from 51.1 in January. While the index still indicates expansion, the slower pace of growth reflects ongoing challenges in the Australian economy. Similarly, the Services PMI eased to 50.8 from 51.2, though it remains in expansion territory.
RBA Deputy Governor Andrew Hauser emphasized the growing uncertainty in global trade, warning that the ongoing tariff disputes, particularly with the US, could prompt businesses to delay investment decisions, further slowing economic growth.
AUD/USD Technical Outlook: Testing Support Levels
As of Friday, AUD/USD is trading near the 0.6320 mark, testing the lower boundary of an ascending channel pattern on the daily chart. This technical structure suggests a bullish bias, although the pair is currently confined within the channel. The 14-day Relative Strength Index (RSI) remains above the 50 mark, reinforcing the outlook for potential upward movement.
Resistance is seen at the three-month high of 0.6408, recorded on February 21, followed by the upper boundary of the ascending channel at 0.6440. On the downside, immediate support lies at the 50-day Exponential Moving Average (EMA) of 0.6309, coinciding with the lower boundary of the channel. A break below this key support level could trigger a deeper decline, potentially revisiting the four-week low of 0.6187, recorded on March 5.
As market participants await the US NFP data and further developments on trade and geopolitical fronts, the Australian Dollar faces a delicate balancing act, with technical factors, economic data, and global events all playing a role in shaping its near-term outlook.
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