Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6100.
- 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 0.6150.
The AUD/USD exchange rate continued its recovery after signs of a thawing relationship between the US and its top trading partners emerged. The pair rose to a high of 0.6256 on Wednesday morning, up from 0.6088 from its lowest level on Monday.
US and China trade issues
This rebound happened after the US started to levy tariffs on imports from China. The estimate is that these tariffs will hit Chinese goods worth over $450 billion a year. China also announced a set of tarrifs targeting US goods worth about $20 billion a year. Analysts anticipate that these tariffs will be shortlived as Trump and Xi Jinping will likely agree to negotiate.
The US has already paused tariffs from Mexico and Canada for one month. This pause will give room to negotiators to reach an agreement on trade and other aspects like immigration and illicit drug flows to the country.
The Australian dollar is highly sensitive to trade issues, especially where China is involved, since it is primarily a commodity economy. Its top exports are commodities like coal and iron ore, which it mostly sells to China. As such, a sign of weakness in China is a negative thing for the Australian economy.
The AUD/USD pair will react to a trade statement between the US and China. Further, it will react to the upcoming US jobs numbers by ADP. These numbers are expected to show that the private sector added over 144k jobs in January.
The private payroll data will come two days ahead of the Bureau of Labor Statistics (BLS) publishes the official nonfarm payroll (NFP) report. While the jobs report is important, it will likely not have a major impact since the Fed is now focused on inflation.
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AUD/USD technical analysis
The daily chart shows that the AUD/USD pair bottomed at 0.6088 on Monday and then rebounded to 0.6260. It has risen by almost 3% from its lowest level this week.
The pair has remained below the 50-day moving average and the key support at 0.6273, its lowest level in 2023. It has moved below the Ichimoku cloud indicator. The Relative Strength Index (RSI) and the MACD indicators have pointed upwards.
Therefore, the pair will likely retreat and retest the key support level at 0.6100. A move above the key resistance point 0.6330, its highest swing on January 24, will invalidate the bearish view.
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