The Australian Dollar (AUD) is holding firm against the US Dollar (USD) as markets await the US Consumer Price Index (CPI) report for April. After a period of volatility, the AUD/USD pair rose for the second consecutive session on Tuesday, reflecting a complex mix of domestic and global economic signals.
However, the pair’s strength remains fragile amid technical bearish indicators and broader macroeconomic uncertainty. A thorough breakdown of the topic is presented by the brokers at Lesrouleaux in the article.
Australia’s Economic Data Offers Modest Support
The Westpac Consumer Confidence Index in Australia climbed 2.2% month-on-month to 92.1 in May, bouncing back from a sharp 6.0% drop in April. This marks the third improvement this year and points to a tentative recovery in consumer sentiment. Yet, despite this rebound, the AUD/USD pair still encountered headwinds as broader risk sentiment remains shaky.
At the same time, the Ai Group Industry Index showed a slight improvement in April. However, it also marked the 33rd consecutive month of contraction, largely due to sustained weakness in export-dependent manufacturing. These persistent economic challenges have reinforced expectations that the Reserve Bank of Australia (RBA) may proceed with a 25 basis point interest rate cut this month, potentially lowering the cash rate to 3.85%.
US-China Trade Developments in Focus
A key driver of the recent market sentiment has been the progress in US-China trade negotiations. Over the weekend, officials from both countries met in Switzerland and reportedly reached a preliminary agreement to reduce mutual tariffs. The deal would see US tariffs on Chinese imports drop from 145% to 30%, while China’s tariffs on US goods would fall from 125% to 10%.
This development is particularly relevant for Australia, whose economy is deeply interlinked with Chinese trade flows. A thaw in US-China relations tends to reduce global trade uncertainty, benefiting commodity-linked currencies like the Australian Dollar.
Market Eyes US CPI Report and Fed Policy Path
The US Dollar Index (DXY) is trading lower around 101.60, reflecting investor caution ahead of key inflation data. The April CPI report, due Tuesday, is expected to show headline inflation rebounding to 0.3% month-over-month after a previous -0.1% reading. Similarly, core CPI is forecast to increase to 0.3% from 0.1%.
These figures are being closely watched as they could influence the Federal Reserve’s (Fed) next move. While the Fed kept its benchmark rate steady at 4.25%–4.50% last week, its tone has grown increasingly cautious. In a post-meeting press conference, Fed Chair Jerome Powell underscored that trade uncertainties and persistent inflation may force the Fed into a more measured, data-dependent stance.
Further complicating the picture is the ongoing divergence in inflation trends across the globe. In contrast to the US, China’s CPI declined 0.1% YoY in April, matching forecasts but underscoring domestic demand weakness. China’s Producer Price Index (PPI) also fell 2.7% YoY, reflecting continued disinflationary pressures in the industrial sector.
China’s Trade Data: A Mixed Bag
In April, China recorded a trade surplus of $96.18 billion, beating expectations of $89 billion, although down from March’s $102.63 billion. Exports surged 8.1% YoY, well above the projected 1.9%, but slowed compared to March’s 12.4% growth. Imports, on the other hand, declined 0.2% YoY, a much smaller drop than expected.
These figures indicate resilience in external demand for Chinese goods, but underlying domestic softness remains a concern. Importantly, China’s trade surplus with the US narrowed to $20.46 billion from $27.6 billion, a shift that may help ease bilateral tensions.
Technical Outlook: AUD/USD Battles Resistance
Despite a near-term rise toward the 0.6400 barrier, the AUD/USD pair continues to exhibit a bearish technical structure. The price remains below the nine-day Exponential Moving Average (EMA), currently around 0.6402, indicating ongoing selling pressure.
The 14-day Relative Strength Index (RSI) is hovering below the 50 mark, suggesting limited bullish momentum. Initial support lies at the 50-day EMA near 0.6344. A decisive move below this level could intensify selling and pave the way for a test of 0.5914, last seen in March 2020.
On the upside, if the pair manages to reclaim and sustain above the nine-day EMA, it could retest the six-month high of 0.6515, last hit in December 2024. Beyond that, the next resistance is located near the seven-month high of 0.6687 from November 2024.
Conclusion
The Australian Dollar’s recent gains reflect a confluence of improving domestic sentiment, moderating RBA rate cut expectations, and diminishing global trade tensions. However, the sustainability of this momentum will hinge on US inflation data, the Federal Reserve’s response, and whether the US-China trade agreement holds.
With the AUD/USD pair facing strong technical resistance and global uncertainties lingering, traders should remain cautious. A clear break above key resistance levels could validate further upside, while weak US CPI data or renewed trade conflict could trigger a swift reversal in the currency pair’s direction.
