The Australian Dollar (AUD) continued to see downward pressure against the US Dollar (USD) on Tuesday. In the Asia session, the AUD/USD currency pair was moving up and down below the 0.6300 level. The cannabis pair traded above 0.6290, but technical indicators pointed to a bearish bias as it was trading inside a descending channel. If prices continue to rally, key resistance for the pair lies at the upper boundary of this channel at ~0.6485. If the price does fall under this support, it may exacerbate the pessimistic sentiment and drive the pair nearer to its seven-week bottom of 0.6187, marked on March 5.
The USD has bounced over the last two days from a ten week low. This increase was fueled largely by speculation that US President Donald Trump’s proposed reciprocal tariffs will be narrower in scope and less severe than previously anticipated, exerting downward pressure on the AUD/USD currency pair. Expectations for a Russia-Ukraine peace agreement continued to weigh on the XAU/USD. Sentiment among traders is very bearish on the AUD/USD. Perhaps the biggest unknown comes from President Trump’s announcement of tariffs on products unveiled on April 2, which could lead to a lasting wallop.
Technical Outlook Remains Bearish
The technical outlook of the AUD/USD pair remains bearish as it trades within a descending channel. The pair fell below the 0.6300 level in Tuesday’s Asian session. This movement serves to mark its uphill climb to gain the kind of upward momentum. The current trading level at around 0.6290 is a strong confirmation to the bearish outlook being felt in the market.
Initial support for the pair is found at the lower boundary of the descending channel, currently near 0.6220. An even more bearish picture would take shape if the bulls can’t manage a decisive break above this level. Such a move could see the pair test its seven-week low of 0.6187. Market participants are watching to see whether this support level holds for any signs of a change in market sentiment.
"Labor market conditions are solid, and inflation has moved closer to our 2% longer-run goal, though it remains somewhat elevated." – Fed Chair Jerome Powell
Perhaps most importantly, the recently adopted Inflation Reduction Act promises to further strengthen the US economy. This turn of events is weighing heavily on the AUD/USD pair.
Market Sentiment and Risk Factors
The market has clearly adopted a risk-on impulse. Fueling this shift are reports that President Trump’s reciprocal tariffs may end up being more limited in scope and less draconian than we were led to believe. This path to compliance has been a relief for market participants. Consequently, in the wake of the USD’s improvement, the greenback bounced off a multi-month low.
Additionally, hopes for a potential peace deal between Russia and Ukraine have further supported market sentiment, impacting various currency pairs, including XAU/USD. Traders are still risk averse despite all the positive developments in the market. As much as they are worried about the unknown of President Trump’s next tariff announcement, due April 2.
The risk-sensitive AUD/USD pair may be exposed to potential headwinds as traders assess the impact of these geopolitical and economic developments. The current ambiguity about trade policies and international relations further complicates development to the already volatile market conditions.