The Australian Dollar (AUD) strengthened following the release of the Export Price Index on Thursday, but upside momentum appears restrained due to a dovish outlook from the Reserve Bank of Australia (RBA). A breakout above key resistance levels is needed to confirm a bullish trend.
Australian Dollar Reacts to Export Price Index Data
The AUD/USD pair rebounded after the Australian Bureau of Statistics reported a 3.6% quarter-over-quarter (QoQ) increase in export prices for Q4 2024, reversing a 4.3% decline in Q3. Meanwhile, the Import Price Index rose by 0.2% QoQ, outperforming market expectations of a 1.5% drop. This was largely fueled by soaring gold prices, which reached record highs in October amid global economic uncertainty.
RBA Rate Cut Expectations Weigh on AUD
Leading banks, including ANZ, CBA, Westpac, and NAB, now anticipate a 25 basis point (bps) rate cut by the RBA in February 2025. Previously, NAB had projected a rate cut in May but has now moved its forecast forward. The RBA has held the Official Cash Rate (OCR) at 4.35% since November 2023, emphasizing that inflation must sustainably return to its 2%-3% target range before considering policy easing.
With inflation pressures easing toward the end of 2024, expectations for an RBA rate cut have increased, limiting the Australian Dollar’s upside potential.
US Federal Reserve Maintains Rate, Strengthening the US Dollar
The US Federal Reserve (Fed) left its benchmark interest rate unchanged at 4.25%-4.50% in its January meeting. Fed Chair Jerome Powell emphasized that inflation must show sustained progress or labor market conditions must weaken before considering rate adjustments. The Fed’s cautious stance supported the US Dollar (USD), exerting downward pressure on AUD/USD.
Trade Tensions Add to AUD/USD Headwinds
The Australian Dollar also faces pressure from renewed US trade tensions. President Donald Trump proposed tariffs on key imports, including semiconductors, pharmaceuticals, and metals, aiming to boost domestic manufacturing. Treasury Secretary Scott Bessent suggested a 2.5% universal tariff on US imports, with potential hikes up to 20%. This heightened risk aversion in global markets, weighing on AUD sentiment.
Technical Analysis: AUD/USD Faces Resistance
- Current Level: The AUD/USD pair trades around 0.6230, hovering below the nine-day Exponential Moving Average (EMA) and the lower boundary of an ascending channel, signaling bearish momentum.
- Support Levels: A break below the key support at 0.6131 (January 13 low) could accelerate losses.
- Resistance Levels: Immediate resistance is seen at 0.6252 (nine-day EMA), with a stronger barrier at 0.6280. A breakout above this level could shift the outlook back to bullish, targeting 0.6380.
Outlook: Cautious Optimism with Key Data Ahead
Despite short-term gains, the Australian Dollar remains under pressure due to RBA rate cut expectations, Fed policy, and trade uncertainties. A clear break above 0.6280 could signal renewed bullish momentum, while failure to hold above 0.6131 may lead to further downside. Traders should watch economic data releases and central bank statements for clearer market direction.
