The Australian Dollar (AUD) has been under pressure against the US Dollar (USD), with AUD/USD extending its decline. Here's a breakdown of the factors influencing this currency pair:
Key Points:
- Downward Trend: AUD/USD extends Tuesday’s rejection and revisits the 0.6330-0.6320 band.
- USD Strength: The US Dollar regains balance amid cautiousness ahead of the FOMC meeting.
- Trade War Concerns: Unpredictable trade policies from Washington continue to keep markets on edge.
Trade Tensions in Focus
Investors are wary of potential countermeasures from US trading partners due to unpredictable trade policies. The threat of an escalating trade war looms, pressuring risk-sensitive assets and undermining the Australian currency's upside potential.
Australia's reliance on commodity exports to China makes it vulnerable to US tariffs on Chinese goods. Any slowdown in China could significantly impact the Aussie Dollar.
Central Banks and Inflation
Fears of trade-induced inflation are clashing with concerns over a US economic slowdown. Investors await the Fed’s policy announcement, with interest rates expected to remain unchanged.
Softer US CPI figures for February have increased bets that the Fed might pivot to rate cuts if economic conditions worsen.
The Reserve Bank of Australia (RBA) lowered its benchmark rate by 25 basis points in February to 4.10%. Further moves will depend on inflation data. Speculation persists that the RBA could ease further if trade tensions rise.
Recent RBA meeting minutes showed policymakers debated holding rates steady versus a cut. While they opted for a cut, they emphasized this doesn't guarantee a full easing cycle. The Australian jobs report on Thursday will be central to the debate.
AUD/USD Technical Outlook
Here's a summary of potential price movements based on technical analysis:
- Upside: A break above 0.6408 could lead to the 200-day SMA at 0.6522, with the November 2024 high at 0.6687 as the next target.
- Downside: Initial support lies at the March low of 0.6186. A deeper pullback could target the 2025 trough at 0.6087, with the psychologically significant 0.6000 level below.
Momentum indicators present a mixed outlook. The Relative Strength Index (RSI) has slipped to 53, suggesting waning bullish momentum, while the Average Directional Index (ADX) near 11 indicates a generally weak trend.
Key Data Releases Ahead
Australia’s labour market report on March 20 will be crucial. A stronger or weaker reading could influence the RBA’s next policy move and set the near-term tone for AUD/USD.
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