Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6130.
- Add a stop-loss at 0.6330.
- Timeline: 1-2 days.
Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6330.
- Add a stop-loss at 0.6130.
The AUD/USD pair dropped sharply after Donald Trump announced large tariffs that triggered a trade war. It fell to a low of 0.6210, its lowest point since January 2025 after the Federal Reserve decision and US inflation data.
The main catalyst for the AUD/USD pair was Trump’s decision to impose huge tariffs on imported goods. Trump believes that these tariffs will help to reduce the deficit, which jumped to $122.1 billion in December. This increase happened as companies rushed to buy goods ahead of the tariffs.
Tariffs will likely lead to higher inflation and slow economic growth, a situation known as stagflation. That will make it difficult for the Federal Reserve to deal with it since high interest rates may lead to slow economic growth. Low interest rates, on the other hand, will lead to higher inflation.
Trump’s tariffs came after the Federal Reserve left interest rates unchanged in the first monetary policy meeting. It defied Trump’s requests for low rates by hinting that it will maintain a cautious tone. Most economists expect the Fed will deliver the first interest rate cut in July.
The AUD/USD pair also retreated after Australia published the fourth-quarter inflation data that pointed to interest rate cuts by the RBA. The data showed that the headline Consumer Price Index (CPI) dropped from 2.8% in Q3 to 2.4% in Q4, lower than the median estimate of 2.5%.
More data showed that the trimmed mean CPI dropped from 3.6% to 3.2%, while the weighted mean fell from 3.7% to 3.4%. These numbers mean that the RBA will start cutting interest rates later this month. It will be the first cut since the pandemic started.
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AUD/USD technical analysis
The AUD/USD pair rose and peaked at 0.6330 in January. It then suffered a reversal and moved to the next key support at 0.6200, its lowest level on January 25. The pair has remained below the 50-day moving average and the middle line of the Bollinger Bands.
Further data shows that the Average Directional Index (ADX) dropped to 19.68, its lowest level since September last year. The momentum indicator has also dropped slightly. Therefore, the pair will likely continue falling as sellers target the key support at 0.6130. The stop-loss of this view is at 0.6330.
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