The Australian Dollar (AUD) continued its rally on Tuesday, marking its fifth consecutive day of gains against the US Dollar (USD). The AUD/USD pair saw a boost after US President Donald Trump announced exemptions for key technology products from his new “reciprocal” tariffs, lifting global risk sentiment.
These exemptions, covering items largely produced in China such as smartphones, computers, semiconductors, and solar cells, have provided a boost to the AUD. This is especially significant as China remains Australia’s largest trading partner and a major consumer of Australian commodities.
Meanwhile, minutes from the Reserve Bank of Australia‘s (RBA) March 31–April 1 meeting indicated that the timing of the next interest rate move remains uncertain. While the Board noted that the May meeting would be an appropriate time to reassess policy, they emphasized that no decision had been made yet. The RBA acknowledged global uncertainty, particularly the impact of US tariffs, as a key factor influencing the outlook. Additionally, the RBA highlighted both upside and downside risks to Australia’s economy and inflation.
As Australia’s 10-year government bond yield slipped to 4.33%, the RBA maintained a dovish tone, pointing to easing core inflation and further rate cuts in the future. Markets are currently pricing in a 25-basis point rate cut in May and expect a total of around 120 basis points of easing throughout the year.
The US Dollar Index (DXY), which measures the USD against a basket of major currencies, edged higher after hitting its lowest point since 2022, as investors adjusted to growing concerns about stagflation risks. Atlanta Fed President Raphael Bostic noted that the US central bank still faces a long road ahead to achieve its 2% inflation target, dampening market expectations for additional interest rate cuts.
The escalating US-China trade war has revived concerns about a global economic slowdown. China recently increased tariffs on US goods from 84% to 125%, in response to Trump’s decision to raise tariffs on Chinese imports to 145%. These trade tensions have compounded investor unease, further supporting demand for the AUD.
On the economic front, the US Consumer Price Index (CPI) eased to 2.4% year-over-year in March, down from 2.8% in February, and below market expectations of 2.6%. Core CPI, excluding food and energy prices, rose 2.8% annually, missing expectations for a 3.0% increase. Meanwhile, the University of Michigan’s sentiment index dropped to 50.8 in April, and inflation expectations surged to 6.7%, adding to the mixed economic picture.
Looking ahead, the People’s Bank of China (PBoC) is expected to implement further monetary easing in Q2 2025, which may include a 15-basis point cut to the loan prime rate and a minimum 25-basis point reduction in the reserve requirement ratio. These moves could further support the AUD, as China’s efforts to ease domestic pressures could benefit Australia’s economy.
From a technical perspective, the AUD/USD pair is trading near 0.6340, with the pair remaining above both the nine-day and 50-day Exponential Moving Averages (EMAs), signaling a bullish trend. The next resistance levels lie at 0.6400 and 0.6408, while immediate support is seen at the 50-day EMA around 0.6270. A break below these levels could trigger a reversal, with downside targets near 0.5914 and the psychological level of 0.5900.
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