Australian Dollar weakens amid heightened global risk sentiment

• The Australian Dollar declines due to escalating trade tensions.
• Traders await Australia's monthly inflation report due on Wednesday seeking key insights into the RBA's policy outlook.
• President Trump said tariffs on Canada and Mexico 'will go forward'.

The Australian Dollar (AUD) extends its losses against the US Dollar (USD) for the third consecutive session on Tuesday. Investors eagerly anticipate Australia's monthly inflation report on Wednesday, as it's expected to offer crucial insights into the future course of monetary policy after the Reserve Bank of Australia's (RBA) recent hawkish rate cut.

The risk-sensitive AUD/USD pair faces challenges due to rising risk sentient as US President Donald Trump said late Monday that sweeping US tariffs on imports from Canada and Mexico "will go forward" when a month-long delay on their implementation expires next week. Trump claimed that the US has "been taken advantage of" by foreign nations and reiterated his plan to impose so-called reciprocal tariffs.

The AUD received support as Australia's close trading partner China released of its annual policy statement for 2025 on Sunday. The statement details strategies to advance rural reforms and promote comprehensive rural revitalization. Additionally, China's state-supported developers are aggressively increasing land purchases at premium prices, driven by the government's relaxation of home price restrictions to revitalize the troubled property market.

Australian Dollar remains subdued due to increased risk aversion

• The US Dollar Index (DXY), which measures the USD against six major currencies, depreciates below 106.50 at the time of writing. The DXY faced challenges following the downbeat US economic data including Jobless Claims and S&P Global Purchasing Managers' Index (PMI) released last week.
• President Trump signed a memorandum on Friday instructing the Committee on Foreign Investment in the United States (US) to limit Chinese investments in strategic sectors. Reuters cited a White House official saying that the national security memorandum seeks to encourage foreign investment while safeguarding US national security interests from potential threats posed by foreign adversaries like China.
• The US Composite PMI fell to 50.4 in February, down from 52.7 in the previous month. In contrast, the Manufacturing PMI rose to 51.6 in February from 51.2 in January, surpassing the forecast of 51.5. Meanwhile, the Services PMI declined to 49.7 in February from 52.9 in January, falling short of the expected 53.0.
• US Initial Jobless Claims for the week ending February 14 rose to 219,000, exceeding the expected 215,000. Meanwhile, Continuing Jobless Claims increased to 1.869 million, slightly below the forecast of 1.87 million.
• Federal Reserve Board Governor Adriana Kugler stated on Thursday that US inflation still has "some way to go" before reaching the central bank's 2% target, noting that the path remains uncertain, according to Reuters.
• The latest Federal Open Market Committee (FOMC) Meeting Minutes reaffirmed the decision to keep interest rates unchanged in January. Policymakers emphasized the need for more time to assess economic activity, labor market trends, and inflation before considering any rate adjustments. The committee also agreed that clear signs of declining inflation are necessary before implementing rate cuts.
• Trump has confirmed that a 25% tariff on pharmaceutical and semiconductor imports will take effect in April. Additionally, he reaffirmed that auto tariffs will remain at 25%, further escalating global trade tensions.
• The Reserve Bank of Australia (RBA) lowered its Official Cash Rate (OCR) by 25 basis points to 4.10% last week--the first rate cut in four years. Reserve Bank of Australia (RBA) Governor Michele Bullock acknowledged the impact of high interest rates but cautioned that it was too soon to declare victory over inflation. She also emphasized the labor market's strength and clarified that future rate cuts are not guaranteed, despite market expectations.

Technical Analysis: Australian Dollar tests nine-day EMA barrier near 0.6350

AUD/USD trades near 0.6340 on Tuesday, moving within an ascending channel that reflects bullish market sentiment. The 14-day Relative Strength Index (RSI) stays above 50, supporting the positive outlook.

On the upside, the AUD/USD pair tests the immediate barrier at a nine-day Exponential Moving Average (EMA) of 0.6343. A successful break above this level could improve the bullish bias and support the pair to test the key psychological resistance at 0.6400, with the next hurdle at the ascending channel's upper boundary around 0.6440.

The AUD/USD pair could find immediate support at the 14-day EMA of 0.6329, aligned with the channel's lower boundary.

AUD/USD: Daily Chart