The Australian Dollar (AUD) has continued to appreciate against the US Dollar (USD) for the third consecutive session, despite weaker-than-expected Consumer Inflation Expectations data released on Thursday. The data showed that consumer expectations for inflation over the next 12 months fell to 3.6% in March, down from 4.6% in February—marking the highest level since April 2024.
The AUD/USD pair has risen as the US Dollar faces pressure from ongoing tariff uncertainty and concerns over a potential US recession. The strengthening of the Australian Dollar also comes despite US President Donald Trump ruling out exemptions from his 25% tariffs on aluminum and steel, key exports to the US valued at nearly $1 billion. However, Prime Minister Anthony Albanese emphasized that Australia would not retaliate with reciprocal tariffs, noting that such measures would only increase costs for Australian consumers and fuel inflation.
US Dollar Faces Headwinds Amid Trade and Inflation Uncertainty
While the US Dollar Index (DXY) is holding steady around 103.50, the US Dollar has faced challenges, partly due to softer inflation data and growing concerns over the US economy. The latest Consumer Price Index (CPI) data for February showed a cooling of both headline and core inflation, with headline inflation rising 0.2% and core inflation also easing to 0.2%, both below expectations. On an annual basis, headline inflation declined to 2.8%, while core inflation fell to 3.1%.
In response to the weaker inflation data, markets have speculated that the US Federal Reserve (Fed) could start cutting interest rates sooner than previously expected. However, US President Trump’s remarks about the economy being in a “transition period” have added to fears that a slowdown may be on the horizon. This, coupled with trade tensions and the imposition of tariffs, has heightened recession concerns, further weighing on the US Dollar.
RBA Outlook and Trade Tensions Continue to Influence the AUD/USD Pair
The Reserve Bank of Australia’s (RBA) outlook remains a focal point for investors. The robust economic data from last week, which exceeded forecasts, has helped dampen expectations of further rate cuts from the RBA. Meanwhile, concerns around US trade policies, particularly Trump’s tariffs, are impacting global markets. RBA Deputy Governor Andrew Hauser warned that global trade uncertainty, especially regarding US tariffs, could prompt businesses and households to delay investments, potentially hindering economic growth.
Meanwhile, on the trade front, the US-China trade talks remain deadlocked. Chinese officials have indicated that the US has not offered clear steps on fentanyl measures, and trade tensions are escalating. Recently, China announced a 100% tariff on Canadian rapeseed oil, oil cakes, and peas, along with a 25% levy on aquatic products and pork, marking the intensification of global trade disputes. These developments have kept investors on edge, further supporting the Australian Dollar’s strength as a safer bet against the volatility of global trade.
AUD/USD Technical Outlook:
The AUD/USD pair is currently trading near 0.6320, with the technical chart indicating positive momentum. The pair is moving above the nine-day Exponential Moving Average (EMA), signaling short-term bullish strength. The Relative Strength Index (RSI) has also moved slightly above 50, confirming the bullish bias.
The next key resistance for the AUD/USD pair lies around the three-month high of 0.6408, which was last touched on February 21. On the downside, immediate support is located at the 50-day EMA around 0.6307, with further support at the nine-day EMA near 0.6304. A break below these levels could signal weakening momentum and push the pair towards the five-week low of 0.6187, seen on March 5.
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