The Australian Dollar (AUD) continues to show notable strength in currency markets, extending its three-session winning streak on Thursday as traders digest evolving macroeconomic developments. The AUD/USD pair edged higher, bolstered by the Reserve Bank of Australia’s (RBA) surprising decision earlier this week to keep the Official Cash Rate (OCR) unchanged at 3.85%.
This decision, combined with intensifying global trade war fears spurred by fresh US tariff threats, has weighed heavily on the US Dollar (USD), pushing the US Dollar Index (DXY) lower for the second straight session. Fimatron’s team presents an in-depth analysis of this subject in their latest publication.
US Dollar Weakens as US President Rekindles Trade War Anxiety
Meanwhile, the US Dollar has come under pressure amid an uptick in trade protectionism rhetoric from the US President. The US President launched a new wave of tariff demand letters, reviving fears of a global trade war that could stall economic recovery. The US Dollar Index (DXY) dipped to 97.30, its lowest level in two weeks, reflecting increased risk aversion and waning investor confidence in the greenback.
The US President’s aggressive tariff agenda includes proposed 50% tariffs on copper and the potential introduction of sector-specific levies up to 200%, particularly targeting pharmaceutical imports.
In a sweeping move, he imposed a 25% tariff on goods from Malaysia, Kazakhstan, and Tunisia, while South Africa faces a 30% rate, and Laos and Myanmar are hit with 40% levies. Southeast Asian nations such as Indonesia (32%), Bangladesh (35%), and Thailand and Cambodia (36%) were also impacted.
These actions were followed by an executive order delaying tariff implementation until August 1, offering only temporary relief. He’s warning that any country aligning with BRICS would be subject to an additional 10% tariff, adding to the market’s anxiety. Investors fear a scenario reminiscent of the 2018–2019 US-China trade conflict, which disrupted global supply chains and heightened market volatility.
China Trade Data and Its Implications for the Australian Dollar
Given Australia’s close trade relationship with China, Beijing’s economic performance plays a crucial role in shaping AUD sentiment. June data showed China’s Consumer Price Index (CPI) rose by 0.1% YoY, slightly above the prior month’s decline, but short of market expectations.
More concerning was the Producer Price Index (PPI), which plunged 3.6% YoY, exceeding the anticipated 3.2% drop.
The Financial Times reported a shift in Chinese trade routes as exporters increasingly reroute goods via Southeast Asia to bypass US tariffs. China’s direct exports to the US fell 43% in May, while exports to Southeast Asia surged 15%, and shipments to the European Union rose 12%. However, the US is clamping down, adding a 40% tariff on goods transshipped via Vietnam to combat tariff circumvention.
These developments carry indirect implications for the AUD, as reduced Chinese exports could suppress commodity demand, particularly for Australian iron ore, a key export. Nevertheless, the structural realignment of supply chains might also open alternative trade corridors, providing some insulation for Australian exports.
Technical Outlook: AUD/USD Maintains Bullish Bias
On the technical front, the AUD/USD pair is trading near 0.6540, sustaining momentum above the nine-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) remains comfortably above the neutral 50 threshold, underscoring a bullish sentiment.
The pair’s immediate resistance lies at the eight-month high of 0.6590 reached on July 1. A decisive break above this level could propel the AUD/USD toward 0.6680, the upper boundary of the ascending channel on the daily chart.
Support is expected near the nine-day EMA at 0.6538, with a further downside cushion at the ascending channel’s lower boundary around 0.6510, followed by the 50-day EMA at 0.6478. A breach below these levels would suggest trend exhaustion and invite renewed bearish pressure.
Outlook: AUD Strength Faces Mixed Drivers
While the Australian Dollar is benefiting from a combination of RBA hawkishness, USD weakness, and tariff-driven risk aversion, upcoming events could temper further gains. The US Initial Jobless Claims, due later Thursday, could offer more clues about the health of the US labor market, while the RBA’s August policy decision may be pivotal in determining the medium-term trajectory for the AUD.
Australian Treasurer Jim Chalmers remarked that the RBA’s rate decision may not have aligned with public or market expectations, but it reflects the central bank’s strategic positioning to contain inflationary risks. As global geopolitical tensions escalate and monetary policy paths diverge, the AUD remains a currency to watch.
Conclusion
The AUD/USD pair’s resilience amid global uncertainty illustrates the market’s nuanced interpretation of central bank signals, economic data, and geopolitical risks. As the US Dollar retreats under the weight of renewed trade war threats, the Australian Dollar stands to benefit, at least in the short term.
