During the European trading session, the Australian dollar (AUD) managed to recover its earlier losses and moved slightly higher against the U.S. dollar (USD). The U.S. dollar pared some of its gains, allowing the AUD/USD exchange rate to hold on to its upward momentum. However, the pair faces headwinds following a recent U.S. federal court decision blocking President Donald Trump’s “Liberation Day” tariffs.
U.S. Court Blocks Trump’s Tariffs on Trade Partners
Reuters reported that the Federal Trade Court ruled President Trump lacked the authority to impose broad tariffs on countries exporting large quantities of goods to the U.S. This ruling limits the administration’s ability to use tariffs as a trade lever. The decision has created some uncertainty in currency markets, affecting the Australian dollar due to its close trade ties with China.
U.S.-China Trade Tensions and Impact on AUD
The Trump administration recently suspended sales of certain jet engines, semiconductors, and chemicals to China, according to the New York Times. This action came in response to China’s export restrictions on critical minerals bound for the U.S. Given Australia’s strong trade relationship with China, any disruptions or restrictions in the Chinese market could weigh on the Australian dollar.
Reserve Bank of Australia Signals More Rate Cuts Ahead
The Australian dollar may also face pressure from the Reserve Bank of Australia’s (RBA) expected move to cut interest rates further at its upcoming policy meeting. The RBA has noted progress in controlling inflation but remains cautious about downside risks from U.S.-China trade tensions. Governor Michelle Bullock stated the central bank is prepared to act again if economic conditions worsen sharply, raising the likelihood of future rate reductions.
Technical Outlook for AUD/USD
Currently, the AUD/USD pair trades near 0.6410, showing signs of a weakening bullish bias. Technical analysis reveals the pair has broken below the lower boundary of an ascending channel on the daily chart. Short-term momentum is also declining, with the price staying below the 9-day exponential moving average (EMA). The 14-day relative strength index (RSI) is around 50, indicating a neutral market stance.
The pair may attempt to regain lost ground by re-entering the ascending channel. Key resistance levels include the 9-day EMA at 0.6437 and the six-month high of 0.6537 reached on May 26. Surpassing these levels could renew bullish momentum, potentially pushing the AUD/USD toward the channel’s upper boundary near 0.6640.
On the downside, initial support appears at the 50-day moving average of 0.6382. A break below this could weaken medium-term momentum and apply downward pressure. Further declines may drive the pair toward 0.5914, the lowest level seen since March 2020.
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