Australian Dollar gains ground on USD softness

• AUD/USD remains confined below 0.6300, trading around 0.6260 on Tuesday.
• The pair has consolidated sideways for five consecutive sessions.
• Ongoing US tariff threats and mixed inflation data weigh on the Aussie.
• Expectations of an imminent RBA rate cut add to market uncertainty and cap further gains.

The Australian Dollar (AUD) remains in a sideways consolidative move for the fifth straight day, trading below the 0.6300 mark on Tuesday. Investor sentiment is cautious as United States (US) tariff threats on Chinese goods persist and Beijing retaliates, while market participants focus on US Q4 economic data and upcoming domestic Consumer Price Index (CPI) reports that could shape Reserve Bank of Australia (RBA) policy.

On Tuesday, markets reacted to Federal Reserve (Fed) Chair Jerome Powell's testimony before the US Congress, which saw him take a cautious tone. Focus now shifts to inflation data from the US on Wednesday.

Daily Digest Market Movers: Aussie under pressure amid global trade and policy uncertainty

• The US Dollar Index (DXY) revisited the 108.00 support despite higher US yields and a cautious tone from Fed Chair Powell. With the upcoming release of the US Inflation Rate, along with testimony from Fed officials like Bostic and Waller, market participants anticipate further insights into the Fed's policy stance.
• Recent trade developments have been volatile. Trump's imposition of a 25% duty on imports from Canada and Mexico, delayed by a month, provided short-lived relief, yet his 10% tariff on Chinese goods remains active.
• In retaliation, China has signaled it will contest these tariffs at the World Trade Organization (WTO), sparking concerns over reduced demand for Australia's resource exports.
• On the domestic front, Australia's Q4 Consumer Price Index (CPI) showed headline inflation at 2.5% YoY, down from 2.8%, and a trimmed mean CPI at a three-year low of 3.2%.
• These softer inflation readings have strengthened market expectations of a 25 basis point rate cut by the RBA in February, though many believe total easing could reach 85 basis points over the next year.

AUD/USD Technical Outlook: Consolidation persists as technicals hint at cautious momentum

The AUD/USD pair remains range-bound, currently trading around 0.6260 as the pair continues its sideways consolidation. While the market has held support below the 0.6300 resistance, technical indicators reflect a cautious outlook. The Relative Strength Index (RSI) is at 55, still positive but showing signs of a decline, which indicates that bullish momentum is weakening.

Concurrently, the Moving Average Convergence Divergence (MACD) histogram prints rising green bars, hinting at a gradual build in momentum. With the pair confined in a narrow range between approximately 0.6230 and 0.6300, traders are awaiting decisive US and Australian economic data to trigger a clear directional move.