The Australian Dollar (AUD) slipped against the US Dollar (USD) on Wednesday as heightened risk aversion stemming from escalating US-China trade tensions weighed on investor sentiment. The currency struggled to find support despite an improvement in Australia’s Judo Bank Purchasing Managers Index (PMI).
Australia’s Judo Bank Composite PMI climbed to 51.1 in January from 50.2 in December, signaling moderate growth in private sector activity. The Services PMI also rose to 51.2 from 50.8, marking its twelfth consecutive month of expansion and the strongest increase since August. However, these gains were not enough to offset broader market concerns.
The AUD faces further downside risks as speculation grows that the Reserve Bank of Australia (RBA) may consider a rate cut in February. The central bank has kept the Official Cash Rate (OCR) at 4.35% since November 2023, maintaining that inflation must return “sustainably” to its 2%-3% target range before any monetary easing is implemented.
Global trade uncertainty remains a major headwind for the Aussie, given Australia’s close economic ties with China. Beijing retaliated against the latest 10% US tariff that took effect on Tuesday, while former US President Donald Trump hinted at further substantial tariffs if a deal with China is not reached. He also mentioned plans to engage in talks with Chinese officials within the next 24 hours, adding to market volatility.
Despite these challenges, the AUD/USD pair remained above the descending channel pattern on the daily chart, hovering near 0.6250. The 14-day Relative Strength Index (RSI) stood at the neutral 50 level, with a break above potentially signaling a stronger bullish trend.
On the upside, the pair could target the seven-week high of 0.6330 recorded on January 24. Immediate support lies around the nine-day Exponential Moving Average (EMA) near 0.6240, followed by the upper boundary of the descending channel. A pullback into the channel could reinforce bearish sentiment, potentially driving the pair toward the lower boundary near 0.6140.
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