AUD/USD tumbles to near 0.6300 as US Dollar extends recovery, soft CPI
- Australian Dollar declines as subdued inflation dims hopes for aggressive rate cuts, pressuring the Aussie’s recent rally.
- US House of Representatives passes Trump’s tax cut bill, elevating the Greenback despite uncertain tariff developments.
- Softer growth in Australia’s Consumer Price Index intensifies speculation around potential monetary policy actions by the RBA.
- Donald Trump confirmed that tariffs on Mexico and Canada will take effect in April.
AUD/USD falls to near 0.6300 as the US Dollar (USD) extends its recovery. The United States (US) House of Representatives passed President Donald Trump’s tax cut bill, boosting the Greenback. Meanwhile, slower-than-expected inflation growth in Australia adds to the Aussie’s woes, following last week’s 25 basis points rate cut by the Reserve Bank of Australia (RBA).
Daily digest market movers: Aussie battles inflation slowdown and tariffs
- Market participants note subdued growth in the Australian Monthly Consumer Price Index at 2.5% year-on-year, softer than the 2.6% forecast, maintaining concerns about the RBA’s inflation outlook.
- The RBA recently lowered its Official Cash Rate to 4.10%, reiterating that controlling inflation is far from complete, and future actions will rely on persistent price and wage signals.
- Softer monthly CPI data fosters uncertainty over Australia’s economic resilience, while US President Donald Trump’s revived tariff threats keep investors alert to potential disruptions.
- Trump reiterated plans to impose a 25% levy on imports from Canada and Mexico but pushed them to April.
- Investor attention also turns to US Personal Consumption Expenditure Price Index data, a key inflation measure used by the Federal Reserve for guiding interest rate decisions.
AUD/USD technical outlook: RSI near midpoint, momentum falters as pair nears 20-day SMA
AUD/USD sees moderate losses on Wednesday, with the Aussie near 0.6315 after a four-day losing streak. The Relative Strength Index (RSI) hovers in a neutral region but is declining sharply, suggesting a weakening bullish momentum. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram prints decreasing green bars, indicating a loss of upside traction.
Although the pair remains above the 20-day Simple Moving Average, failure to reclaim the 100-day SMA does not imply a major structural shift, and the Aussie may continue to trade within these moving average boundaries unless new data sparks a more decisive move.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.