On Friday, the Australian Dollar (AUD) faced downward pressure against the US Dollar (USD), continuing to grapple with the fallout from the ongoing US-China trade dispute. The White House’s confirmation that US tariffs on Chinese goods had soared to 145% sent shockwaves through the financial markets. This significant hike in tariffs not only intensified tensions between the world’s two economic powerhouses but also cast a shadow over the AUD due to Australia’s extensive trade ties with China. Any disruption in the China-Australia trade relationship can have far – reaching consequences for the Australian economy and, by extension, its currency.
Glimmers of Hope: EU Trade Talks Offer Support
However, the AUD did receive a glimmer of support on Thursday. Reports emerged indicating that Australia was set to resume trade negotiations with the European Union (EU). This development provided a ray of optimism for the currency. Simultaneously, The Wall Street Journal reported that China had engaged in talks with the EU’s trade chief, Maros Sefcovic, expressing a keen interest in strengthening trade, investment, and industrial cooperation with the bloc. These diplomatic overtures signaled potential new opportunities for trade, which could help offset some of the negative impacts of the US – China trade conflict on the Australian economy.
China’s Countermeasures and Their Ripple Effects
In response to the US tariffs, China took several retaliatory steps. It raised tariffs on 84% of American imports and added six US firms, including defense and aerospace companies such as Shield AI and Sierra Nevada, to its trade blacklist. Additionally, China imposed export controls on American Photonics and BRINC Drones, among other companies. These measures further complicated the global trade landscape and added to the overall uncertainty in the market, which in turn influenced the AUD’s performance.
US Dollar Woes and Economic Data Expectations
The US Dollar Index (DXY), which measures the greenback against a basket of six major currencies, was trading lower at around 100.20 at the time of reporting. Persistent concerns about both the global and US economic outlooks were weighing heavily on the US Dollar. Investors were eagerly awaiting the release of the US March Producer Price Index (PPI) and the preliminary Michigan Consumer Sentiment data, both scheduled for later on Friday. These economic indicators were expected to provide crucial insights into the health of the US economy and potentially impact the direction of the USD and, consequently, the AUD/USD pair.
Inflation Data and Central Bank Dilemmas
The US Consumer Price Index (CPI) inflation data for March showed a notable slowdown. The annual inflation rate eased to 2.4%, down from 2.8% in February and below the market forecast of 2.6%. The core CPI, excluding food and energy prices, rose 2.8% annually, missing the 3.0% estimate and coming in lower than the previous 3.1%. On a monthly basis, the headline CPI dipped by 0.1%, while the core CPI edged up by 0.1%. This data painted a complex picture of the US economy, with inflation cooling but still posing challenges.
In a bid to ease trade tensions, President Trump announced a 90 – day pause on new tariffs for most US trade partners on Wednesday, lowering rates to 10% to facilitate continued negotiations. Mark Hackett of Nationwide commented that this pause was an encouraging sign, suggesting that negotiations with most countries had been productive and injecting much – needed stability into a market rattled by uncertainty.
Meanwhile, minutes from the latest Federal Open Market Committee (FOMC) Meeting revealed that policymakers were nearly unanimous in recognizing the dual challenge of rising inflation and slowing growth. This signaled that the Federal Reserve faced difficult decisions in the months ahead, with potential trade – offs between stimulating growth and controlling inflation.
In China, the economic data also presented a mixed bag. The CPI declined 0.1% year – over – year in March, following a 0.7% drop in February and falling short of expectations for a 0.1% increase. On a monthly basis, it dropped 0.4%, worse than the previous month’s 0.2% decline and the forecasted figure. China’s PPI contracted more sharply than expected, falling 2.5% annually in March compared to a 2.2% drop in February and a projected 2.3% decline. These figures raised concerns about the health of the Chinese economy and its potential impact on Australia’s trade – dependent economy.
Australian Economic Outlook and Rate Cut Speculations
Back in Australia, subdued business and consumer sentiment had strengthened expectations of a dovish stance from the Reserve Bank of Australia (RBA). Markets were pricing in up to 100 basis points in rate cuts this year, with the first cut potentially coming as early as May, followed by additional reductions in July and August. These rate cut expectations were weighing on the AUD, as lower interest rates typically make a currency less attractive to investors seeking higher yields.
Technical Analysis: AUD/USD’s Short – Term Prospects
As of Friday, the AUD/USD pair was trading near 0.6190. Looking at the daily chart, the pair was trading above the nine – day Exponential Moving Average (EMA), which provided a slight bullish tilt. However, the 14 – day Relative Strength Index (RSI) remained just below the 50 mark, indicating that bearish pressure still lingered.
The nine – day EMA, currently at 0.6167, served as an immediate support level. A decisive break below this level could weaken the short – term bullish momentum and potentially send the pair towards the 0.5914 zone, its lowest point since March 2020, followed by the key psychological support at 0.5900.
On the upside, the 50 – day EMA, around 0.6260, presented initial resistance. If the pair could sustain a move above this level, it might pave the way for a stronger recovery, potentially pushing the AUD/USD pair towards the four – month high of 0.6408.
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