- AUD/USD faded part of recent gains and returned to the sub-0.6300 area.
- The US Dollar extended its weekly recovery amid intense tariff concerns.
- The prospect of a global trade war continued to weigh on the AUD.
The Australian Dollar (AUD) lost part of its recent shine on Thursday, prompting AUD/USD to slip back below the key 0.6300 mark, amid the continuation of the recovery in the US Dollar (USD).
In fact, this rebound caused the US Dollar Index (DXY) to reclaim the 104.00 hurdle and hit weekly highs amid further tariff concerns, recession fears and extra gains in US yields across different time frames.
Trade tensions under the spotlight
The chaotic trade policy led by the White House continued to rattle markets, as investors remained on edge about possible retaliatory moves from US counterparts, all amid the spectre of an escalating trade war.
In fact, the imposition of US tariffs on Chinese imports is expected to be closely followed by Australia, as the country’s commodity exports depend heavily on Chinese demand. A slowdown in China, Australia’s largest trading partner, could quickly weigh on the Aussie Dollar.
Central banks and inflation: The unfolding narrative
Fears that trade-related inflation could force the Federal Reserve (Fed) into a prolonged period of tighter monetary policy are clashing with growing concerns about a potential US economic slowdown. Softer-than-expected US Consumer Price Index (CPI) in February lent some credence to the idea that the Fed might pause or pivot sooner than initially anticipated.
In Australia, the Reserve Bank (RBA) cut its benchmark rate by 25 basis points in February, bringing it to 4.10%. While Governor Michele Bullock underscored that inflation data will guide future moves, Deputy Governor Andrew Hauser warned against assuming a series of cuts is in the cards. Still, market chatter suggests up to 75 basis points of additional easing could be on the horizon, especially if trade tensions escalate.
According to Minutes from the latest RBA meeting, policymakers weighed holding rates steady versus a modest cut; ultimately, they opted for the latter but clarified this did not guarantee a full easing cycle. Officials also highlighted that Australia’s rate peak remains relatively low compared to global peers and noted the continued strength of the domestic labour market.
AUD/USD technical outlook
A push above the March high of 0.6363 (reached on March 6) would target the 2025 top at 0.6408 (February 21). Breaking past that could pave the way to the 200-day Simple Moving Average (SMA) at 0.6527.
On the downside, immediate support emerges at the March low of 0.6186 (March 4). A more pronounced drop could see the pair testing the 2025 bottom at 0.6087 and potentially the psychologically significant 0.6000 level.
Momentum indicators are tilting slightly bearish, with the RSI above 52 hinting at growing upward bias, though the ADX near 12 still indicates a generally weak trend.
AUD/USD daily chart
Key data releases ahead
Looking forward, traders will keep a close watch on Australia’s labour market report due on March 20 for further clues regarding the RBA’s potential next steps.
