Australian Dollar depreciates due to market caution ahead of US NFP

• The Australian Dollar weakens as the US Dollar remains firm ahead of Friday's Nonfarm Payrolls release.
• The AUD may find support after Trump exempted Mexican and Canadian goods under the USMCA from his proposed 25% tariffs.
• US NFP is expected to increase to 160K in February, up from January's softer reading of 143K.

The Australian Dollar (AUD) remains subdued against the US Dollar (USD) for the second consecutive day on Friday. The AUD/USD pair faces modest headwinds as the USD steadies ahead of the upcoming Nonfarm Payrolls (NFP) report in the North American session.

The Reserve Bank of Australia (RBA) maintains its outlook for economic growth to slow toward 2% by 2025. While its stance has previously bolstered AUD strength, investors remain cautious about potential policy shifts in response to inflation and labor market dynamics.

The AUD could find support from easing concerns after US President Donald Trump altered his stance on tariffs again. Trump exempted Mexican and Canadian goods covered by the USMCA from his proposed 25% tariffs.

The Aussie Dollar struggled despite stronger-than-expected Australian GDP data amid trade policy uncertainties and broader economic concerns. In Q4 2024, Australia's GDP grew by 0.6% quarter-over-quarter, surpassing Q3's 0.3% expansion and beating market expectations of 0.5%. On an annual basis, GDP climbed to 1.3% in Q4 from 0.8% in the prior quarter.

Meanwhile, geopolitical tensions remain a downside risk. A Chinese foreign ministry spokesperson warned late Wednesday that China is prepared to engage in "any type" of war in response to Trump's escalating trade tariffs, according to the BBC. Given China's status as Australia's largest trade partner, this development could weigh on the Australian Dollar.

Australian Dollar declines as US Dollar steadies ahead of Nonfarm Payrolls

• The US Dollar Index (DXY), which measures the USD against six major currencies, trades around 104.10 at the time of writing. The Greenback faced downward pressure amid concerns over slowing US economic momentum.
• Traders are now closely watching Friday's US Nonfarm Payrolls (NFP) report, which is expected to show a modest rebound in job growth. Projections suggest net job additions will rise to 160K in February, up from January's subdued 143K.
• US Initial Jobless Claims for the week ending March 1 dropped to 221K, compared to 242K in the previous week, according to the US Department of Labor (DOL) on Thursday. This figure came in below the market consensus of 235K. The ADP Employment Change for February reported just 77K new jobs, falling significantly short of the 140K forecast and well below January's 186K figure.
• Atlanta Fed President Raphael Bostic said late Thursday that the US economy is in incredible flux and it's hard to know where things will land. Bostic also emphasized later that the Fed remains committed to bringing inflation down to 2% while striving to minimize disruptions to the labor market. He also highlighted that business sentiment plays a key role in his approach to setting interest rates.
• The Federal Reserve's (Fed) Beige Book for March carries added significance as concerns grow over the economic impact of President Trump's trade policies. Signs of strain are emerging within the US economy, even before the full implementation of his trade measures.
• Australia's trade surplus rose to 5,620 million in January, surpassing the expected 5,500 million and improving from the previous 4,924 million (revised from 5,085 million). Exports climbed 1.3% month-over-month from the prior month, reaching an 11-month high driven by non-monetary gold. Meanwhile, imports declined by 0.3% MoM, following a sharp 5.9% increase in the previous month, according to the Australian Bureau of Statistics.
• Building permits in Australia surged 6.3% month-on-month in January, significantly accelerating from an upwardly revised 1.7% growth in December. This marks the second consecutive month of expansion and the fastest pace since last July.
• The Judo Bank Composite Purchasing Managers' Index (PMI) declined to 50.6 in February from 51.1 in January, marking the fifth consecutive month of growth in business activity, albeit at a slower pace. The Services PMI also eased to 50.8 from 51.2, reflecting continued expansion for the thirteenth straight month, though at a moderated rate.
• Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser highlighted that global trade uncertainty is at a 50-year high. Hauser warned that uncertainty stemming from US President Donald Trump's tariffs could prompt businesses and households to delay planning and investment, potentially weighing on economic growth.
• China cleared a record 3.8 trillion yuan ($530 billion) in bad assets in 2024 as officials ramped up efforts to tackle financial risks, according to the country's financial regulator. Looking ahead to 2025, regulators are making the housing market a top priority, signaling continued efforts to steady the economy and rebuild confidence in the struggling property sector.

Australian Dollar tests lower ascending channel boundary near 0.6300

AUD/USD is trading near 0.6320 on Friday, with technical analysis of the daily chart showing that the pair is confined within a newly formed ascending channel pattern, indicating a bullish bias. The 14-day Relative Strength Index (RSI) remains above 50, further supporting the bullish outlook.

On the upside, the first resistance appears at the three-month high of 0.6408, recorded on February 21, followed by the upper boundary of the ascending channel at 0.6440.

The immediate support for AUD/USD is at the 50-day Exponential Moving Average (EMA) of 0.6309, which aligns with the lower boundary of the ascending channel. Additional support is seen at the nine-day EMA of 0.6299. A break below this key support zone could trigger further declines, potentially retesting the four-week low of 0.6187, recorded on March 5.

AUD/USD: Daily Chart