The Australian Dollar (AUD) remained under pressure against the US Dollar (USD) for the fourth straight session on Tuesday, despite an improvement in consumer confidence. The Westpac Consumer Confidence Index rose by 4% to 95.9 in March, its highest level in three years, buoyed by the Reserve Bank of Australia‘s (RBA) February rate cut and easing cost-of-living pressures. However, the AUD/USD pair continued to struggle, weighed down by global trade uncertainties and shifting monetary policy expectations.
Market Sentiment Dampened by Trade Tensions and Bond Yields
Australia’s 10-year government bond yield fell to approximately 4.39%, as escalating trade tensions eroded investor risk appetite. China, Australia’s largest trading partner, implemented retaliatory tariffs on select US agricultural products on Monday, following Washington’s decision to raise tariffs on Chinese imports from 10% to 20%. These trade frictions have added to market unease, exerting downward pressure on the AUD.
Despite last week’s stronger-than-expected economic data, which reduced expectations for further RBA rate cuts, traders remain cautious. Australia’s GDP growth accelerated for the first time in over a year, and RBA meeting minutes signaled a measured approach to monetary policy, clarifying that February’s rate cut does not indicate a long-term easing cycle.
US Dollar Remains Subdued as Markets Anticipate Fed Rate Cuts
The US Dollar Index (DXY) remained weak for the sixth consecutive session, hovering around 103.80, as concerns grew that tariff-related uncertainties could push the US economy into recession. Weak US employment data reinforced market expectations that the Federal Reserve (Fed) will cut interest rates multiple times this year.
The US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls (NFP) increased by 151,000 in February, missing the 160,000 forecast, while January’s figure was revised down to 125,000 from 143,000. These figures have strengthened speculation of a total 75-basis-point rate cut by the Fed, with the first move expected in June.
San Francisco Fed President Mary Daly highlighted growing economic uncertainty but downplayed the need for immediate rate adjustments. Meanwhile, Fed Chair Jerome Powell reassured markets last Friday that the central bank sees no urgency to shift policy, despite rising economic risks.
Trade Disputes Worsen as China and Canada Escalate Tariff Battle
Adding to global trade concerns, US Commerce Secretary Howard Lutnick confirmed that the 25% tariffs on steel and aluminum imports, imposed by former President Donald Trump in February, are set to take effect on Wednesday. While US steel producers have pushed for the tariffs, industries reliant on these materials face higher costs.
China responded by imposing a 100% tariff on Canadian rapeseed oil, oil cakes, and peas, along with a 25% levy on aquatic products and pork, effective March 20. This move comes after Canada introduced its own tariffs last October, further intensifying global trade tensions.
China’s Consumer Price Index (CPI) fell by 0.7% year-over-year in February, marking the first instance of deflation since January 2024. The decline, exceeding market expectations of a 0.5% drop, was attributed to weakening seasonal demand following the Spring Festival.
Technical Outlook: AUD/USD Faces Further Downside Risks
The AUD/USD pair is trading near 0.6260, slipping below the nine-day Exponential Moving Average (EMA), signaling weakening short-term momentum. Additionally, the 14-day Relative Strength Index (RSI) has dipped below 50, reinforcing a bearish bias.
On the downside, the pair faces key support near the five-week low of 0.6187, recorded on March 5. Immediate resistance lies at the nine-day EMA of 0.6288, followed by the 50-day EMA at 0.6305. A break above these levels could strengthen short-term momentum, potentially pushing the pair toward the three-month high of 0.6408, last reached on February 21.
As global trade tensions persist and monetary policy expectations shift, the Australian Dollar remains vulnerable to further declines in the near term.
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