The Australian Dollar (AUD) saw a modest decline against the US Dollar (USD) on Friday, retreating from recent gains. The drop in the AUD/USD pair is largely attributed to ongoing US-China trade tensions, which directly affect Australia due to its significant trade relationship with China.
Market sentiment remained cautious, as traders closely monitored the fluctuating global trade situation. Speculation surfaced that the Trump administration might reduce tariffs on Chinese imports, contingent on the outcome of potential discussions with Beijing. China expressed a willingness to negotiate, contingent on the US halting its new threats. However, US Treasury Secretary Scott Bessent tempered the optimism, stating that no unilateral tariff cuts had been proposed and that formal negotiations were yet to begin.
China’s Finance Ministry warned on Friday that the global economy continues to struggle, with ongoing trade wars exacerbating economic instability. The Ministry emphasized the need for stronger multilateral cooperation to strengthen the international economic and financial system, according to Reuters.
In a separate forecast, Westpac predicted that the Reserve Bank of Australia (RBA) would likely reduce interest rates by 25 basis points at its May 20 meeting. Given the RBA’s data-driven approach, market participants are cautious about predicting future moves with certainty.
US Dollar Strengthens Despite Mixed Economic Data
The US Dollar Index (DXY), which measures the USD against six major currencies, retraced losses from the previous session, trading near 99.60. However, the Greenback faced challenges following the release of Initial Jobless Claims data. According to the US Department of Labor (DOL), initial unemployment claims for the week ending April 19 rose to 222,000, surpassing expectations, and up from the revised figure of 216,000 in the previous week. Conversely, Continuing Jobless Claims fell by 37,000 to 1.841 million for the week ending April 12.
Economic indicators also revealed a slowdown in business activity. The flash S&P Global Composite PMI for April dropped to 51.2, down from 53.5, signaling a deceleration in overall business growth. Although the Manufacturing PMI edged up to 50.7, the Services PMI significantly declined to 51.4, reflecting weakening demand in the services sector. S&P Global’s Chris Williamson noted that while growth is slowing, persistent inflationary pressures continue to complicate the Federal Reserve’s efforts to find balance.
The Federal Reserve’s April Beige Book highlighted the adverse effects of tariffs on the economic outlook, with many regions reporting stagnant or slightly declining employment levels.
US Trade Talks and Optimism on Tariffs
US Treasury Secretary Scott Bessent acknowledged on Wednesday that current tariffs—145% on Chinese goods and 125% on US goods—are unsustainable and must be reduced for meaningful negotiations to take place. Meanwhile, Kevin Hassett, Director of the National Economic Council, mentioned that the US Trade Representative (USTR) has 14 meetings scheduled with foreign trade ministers and has received 18 trade proposals.
US President Donald Trump provided some relief to markets by reaffirming that he has no intention of removing Federal Reserve Chair Jerome Powell, addressing concerns about the central bank’s independence. The White House also reported that trade negotiations are progressing, with 18 countries having already submitted proposals to the US. President Trump’s trade team is set to meet with 34 nations this week to explore potential agreements.
Australian Economic Data and Market Outlook
Domestically, Australia’s economic data reflected a mixed picture. The Judo Bank Manufacturing PMI for April fell to a two-month low of 51.7, while the Services PMI slightly dipped to 51.4. Despite remaining in expansion territory, manufacturing output showed only modest growth, with new orders increasing slowly.
Technically, the AUD/USD pair is trading around 0.6410 on Friday, with the daily charts indicating a bullish bias. The pair is above the nine-day Exponential Moving Average (EMA), and the 14-day Relative Strength Index (RSI) remains above 50, signaling potential upward momentum. Immediate resistance is seen near the recent four-month high of 0.6439, and a break above this level could lead to a rally toward the five-month high of 0.6515.
On the downside, support levels are located at the nine-day EMA (0.6365) and the 50-day EMA (0.6302). A sustained decline below these levels could weaken the bullish outlook, potentially leading to further losses and bringing the March 2025 low of 0.5914 into focus.
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