The AUD/USD pair lost most of its intraday gains after facing selling pressure above 0.6230 during the European session on Friday (31/1), but is still up nearly 0.2% at the time of writing. The Australian currency pair weakened as the US Dollar (USD) strengthened amid rising global trade war risks, with US President Donald Trump threatening to impose high tariffs on BRICS, and other North American countries.
The US Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, hit a fresh weekly high near 108.35.
Market participants expect higher tariffs to lead to an acceleration in inflationary pressures on the assumption that such a scenario would boost domestic production, which would boost labor demand and, ultimately, wage growth. Such a scenario would allow the Federal Reserve (Fed) to hold interest rates at current levels for longer.
Meanwhile, investors have been supporting the Australian Dollar (AUD) against the US Dollar even though traders have fully priced in the fact that the Reserve Bank of Australia (RBA) will start cutting interest rates from its February policy meeting. Analysts at ANZ expect that a "sharper than expected" slowdown in inflation will give the RBA enough confidence to cut the Official Cash Rate by 25 basis points (bps) at its next meeting.
AUD/USD corrected near 0.6200 after failing to extend its 11-day recovery above 0.6330 from a more than four-year low of 0.6130. The pair bounced back after a divergence in momentum and price action. The 14-period Relative Strength Index (RSI) formed a higher low, while the pair hit a lower low on the four-hour timeframe.
The asset has also returned below the 50-period Exponential Moving Average (EMA), which is trading around 0.6246.
Going forward, the pair will continue its downward journey if it fails to defend the January 13 low of 0.6130. This will push it lower towards the 0.6100 round-figure support and the April 2020 low of 0.5990.
On the other hand, a stronger move above the January 13 high of 0.6330 will open doors for the 0.6400 round-figure resistance and the December 5 high of 0.6456. (AL)
Source: FXstreet
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