The Australian Dollar (AUD) weakened against the US Dollar (USD) on Tuesday, retreating from recent gains after the release of the Reserve Bank of Australia (RBA) Meeting Minutes and retail sales data.
The February Meeting Minutes from the RBA highlighted potential downside risks to the Australian economy. While the strength of the labor market was noted as a key factor in maintaining interest rates, the minutes revealed that the current labor market conditions were inconsistent with the RBA’s 2.5% inflation target, suggesting a stronger case for a future rate cut.
Retail sales in Australia showed a modest rebound, rising by 0.3% in January after a slight decline of 0.1% in December. However, consumer sentiment softened, with the ANZ-Roy Morgan Consumer Confidence Index dropping to 87.7, down from the previous week’s 89.8—the highest level since May 2022.
The AUD also faces additional headwinds as US President Donald Trump signed an order raising tariffs on Chinese imports to 20%. Given China’s significant role in Australia’s trade, any shifts in the Chinese economy could have a substantial impact on the Australian Dollar.
As the Australian Financial Review Business Summit 2025 kicked off on Tuesday, key industry figures gathered to discuss economic outlooks. Notably, Goldman Sachs CEO David Solomon was scheduled to speak, with RBA Deputy Governor Andrew Hauser following on Wednesday.
The US Dollar Index (DXY), which measures the value of the USD against a basket of major currencies, remained subdued around the 106.50 mark. This downward pressure on the Greenback stemmed from growing optimism surrounding a potential Ukraine peace deal, easing demand for safe-haven assets. European leaders have shown increased support for security guarantees for Ukraine, bolstering risk appetite globally.
US economic data presented mixed signals. The ISM Manufacturing PMI for February came in slightly below expectations at 50.3, a modest decline from January’s 50.9. In contrast, the final S&P Global Manufacturing PMI exceeded forecasts, rising to 52.7, improving from its initial reading. Additionally, the US Personal Consumption Expenditures (PCE) report met expectations, with the headline PCE holding steady at 0.3% month-over-month.
Tensions between President Trump and Ukrainian President Volodymyr Zelenskyy escalated following a heated exchange, leading to a breakdown in peace deal negotiations. A proposed agreement granting the US greater access to Ukraine’s rare earth minerals was abandoned after the confrontation.
On the Australian front, the S&P Global Australia Manufacturing PMI for February was revised down slightly to 50.4 but remained in expansionary territory, marking the second consecutive month of improvement. Meanwhile, Australia’s TD-MI Inflation Gauge fell by 0.2% month-over-month in February, signaling a slowdown in underlying inflation.
China’s manufacturing sector showed positive signs, with the Caixin Manufacturing PMI increasing to 50.8 in February, exceeding expectations. The NBS Manufacturing PMI also rose, indicating stronger-than-expected growth in China’s industrial output.
Despite the overall bearish sentiment, the AUD/USD pair held above the critical support level of 0.6200, hovering around 0.6210 as of Tuesday. A break below this level could push the pair towards 0.6087, its lowest level since April 2020. On the upside, resistance is found at the nine-day Exponential Moving Average (EMA) of 0.6266, with further resistance at the 50-day EMA of 0.6304. A break above this could potentially lead to a retest of the three-month high of 0.6408, reached in late February.
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