Daily Price Outlook
Despite new economic measures by Chinese authorities, the AUD/USD currency pair continues its downward trend, staying under pressure around the 0.6265 level, with an intra-day low of 0.6282.
However, the main reason behind this decline is the strength of the US dollar, which gained momentum after President Donald Trump issued a memorandum directing federal agencies to investigate and address the ongoing trade deficits.
Meanwhile, traders are increasingly expecting the Reserve Bank of Australia (RBA) to cut interest rates as early as next month, which has also contributed to the weakness of the AUD/USD pair.
AUD/USD Struggles as Strong US Dollar Gains Support from Economic Data and Fed Expectations
On the data front, the broad-based US dollar is holding steady above the 108.00 level, supported by President Donald Trump’s memorandum, which directs federal agencies to address ongoing trade deficits. This has strengthened the US dollar, putting pressure on the AUD/USD currency pair.
Traders are closely watching upcoming data, including Friday’s release of the preliminary US S&P Global Purchasing Managers Index (PMI) and Michigan Consumer Sentiment Index for January. These indicators are expected to give further clues about the US economy’s direction.
The US dollar could continue to rise as traders expect the Federal Reserve (Fed) to keep its benchmark interest rate unchanged at 4.25%-4.50% in January.
Moreover, Trump’s policies could push inflation higher, possibly limiting the Fed to just one more rate cut. US retail sales rose 0.4% in December, weaker than expected, while the Consumer Price Index (CPI) increased by 2.9% year-over-year.
Therefore, the strengthening US dollar, supported by President Trump's trade policies and economic data, is putting downward pressure on the AUD/USD pair. Traders expect the Fed to keep interest rates steady, which further supports the US dollar, weakening the Australian currency.
AUD/USD Under Pressure Amid US-China Tensions and Weaker Australian Markets
On the AUD front, the Australian markets are feeling the pressure from global developments, particularly the growing tension between the US and China. The US President, Donald Trump, announced a 10% tariff on Chinese imports starting February 1, citing concerns over fentanyl shipments.
In response, Chinese Vice Premier Ding Xuexiang warned that trade wars have no winners, highlighting the potential risks for both countries. These developments are concerning for Australia, given its strong trade ties with China, making the Australian economy sensitive to changes in China's economic policies.
Meanwhile, Chinese authorities have taken steps to stabilize their stock markets, such as allowing pension funds to invest more in domestic equities and introducing a pilot scheme for insurers to purchase stocks in 2025.
The People's Bank of China has also indicated that they will take measures to support the market when needed.
Despite these efforts, the S&P/ASX 200 Index fell below 8,400, primarily due to a decline in mining stocks, as weaker commodity prices impacted the sector.
This drop in Australian stocks occurred even though Wall Street posted strong gains. Investors are cautious as they await the potential impacts of President Trump's policy changes, keeping pressure on the AUD/USD currency pair.
AUD/USD – Technical Analysis
The Australian dollar (AUD/USD) is trading at $0.62713, experiencing a minor decline of 0.02% as it hovers around a critical pivot point at $0.62435. The currency pair has shown resilience above this level, with the 50-day Exponential Moving Average (EMA) at $0.62422 providing key short-term support.
A break above immediate resistance at $0.62943 could pave the way for further gains, targeting subsequent resistance levels at $0.63342 and $0.63763, where selling pressure may intensify.
On the downside, immediate support is seen at $0.62147, with additional safety nets at $0.61865 and $0.61452. A decisive move below these levels could signal a shift in market sentiment, exposing the pair to further downside risk.
The prevailing market structure suggests cautious optimism, with the pair maintaining a slightly bullish bias above the pivot, supported by steady buying interest.
Technical indicators highlight a consolidation phase, with the 50-day EMA acting as dynamic support. However, sustained upward momentum is required to confirm a breakout beyond the current range.
Market participants are closely watching upcoming economic data releases and broader risk sentiment to gauge future price action.
Traders may consider entering long positions above $0.62570, targeting $0.63210, while placing a stop loss at $0.62142 to manage downside risks.
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