The Australian Dollar (AUD) extended its recent gains against the US Dollar (USD) for a second consecutive session on Monday, buoyed by renewed optimism surrounding US-China trade negotiations held in Geneva.
As a key trade partner with China, Australia often sees its currency respond directly to shifts in Chinese economic and geopolitical developments. Over the weekend, both Washington and Beijing reported “substantial progress” in two days of trade talks aimed at reducing tensions and addressing a $400 billion imbalance. China’s Vice Premier He Lifeng called the discussions “an important first step” in stabilizing relations, while US Treasury Secretary Scott Bessent and Trade Representative Greer described them as “constructive.”
Adding further attention to China’s economic diplomacy, President Xi Jinping is slated to deliver a keynote address at the China-CELAC Forum’s fourth ministerial meeting in Beijing on May 13. This comes as global markets look for signs of policy direction from the world’s second-largest economy.
Looking ahead, traders are closely watching upcoming Australian data releases, including the May Westpac Consumer Confidence Index and April NAB Business Conditions report, both due Tuesday. These indicators may provide fresh direction for the AUD. Meanwhile, investors are also eyeing US economic data, with April’s Consumer Price Index set for release Tuesday, followed by Retail Sales and Producer Price Index figures on Thursday—key metrics that could reflect early impacts from the ongoing trade tensions.
The US Dollar Index (DXY), which tracks the greenback against six major currencies, slipped for a second day to around 100.60. Still, the dollar found partial support after US officials framed the Geneva talks as “productive.” Further details are expected from a scheduled briefing on Monday morning.
Tariff tensions remain elevated, with current US tariffs on Chinese goods standing at 145%, while Beijing has imposed a 125% tariff on American exports. Commerce Secretary Howard Lutnick noted that the 10% baseline tariff on other nations is likely to remain “for the foreseeable future.”
Meanwhile, the Federal Reserve last week kept interest rates steady at 4.25%–4.50%, but flagged growing concerns over inflation and rising unemployment. Fed Chair Jerome Powell warned that trade-related disruptions could hamper the central bank’s ability to manage economic stability in 2025, suggesting a more cautious stance on future rate moves.
In China, the economic data underscored continuing weakness. April’s Consumer Price Index (CPI) declined 0.1% year-on-year for the third straight month, in line with expectations. The Producer Price Index (PPI) saw a sharper-than-anticipated drop of 2.7% YoY. Despite this, China’s trade surplus came in higher than forecast at $96.18 billion in April, although down from $102.63 billion in March. Exports rose 8.1% YoY, while imports edged down just 0.2%, showing resilience despite weaker domestic consumption.
In a potential shake-up of its property market, Beijing is considering a major policy shift to ban pre-sales of unfinished homes, limiting transactions to completed properties. The reform, intended to stabilize the sector, would apply to future land sales except for public housing, with implementation left to local authorities.
Back in Australia, the Ai Group Industry Index showed slight improvement in April but marked the 33rd straight month of contraction—highlighting persistent weakness in export-oriented manufacturing. This has reinforced expectations that the Reserve Bank of Australia (RBA) could cut interest rates by 25 basis points to 3.85% later this month.
Technically, the AUD/USD pair is trading near 0.6420. While the pair remains below the ascending channel pattern on the daily chart—suggesting a neutral short-term outlook—the 14-day Relative Strength Index (RSI) remains above 50, pointing to continued bullish sentiment.
If the pair re-enters the ascending channel, it may retest the six-month high of 0.6515 from December 2024. A break above that could pave the way toward the November high of 0.6687, with resistance seen around 0.6730. On the downside, initial support lies at the nine-day EMA of 0.6420, followed by the 50-day EMA at 0.6345. A breach below these levels could shift momentum, exposing the pair to deeper losses toward 0.5914—the lowest since March 2020.
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