The AUD/USD pair edged higher on Monday, with the pair moving closer to the 0.6300 handle after bouncing off last week's lows around 0.6260. The recovery came during the American session amid increased optimism over a potential moderation in upcoming US tariff policy, supportive Chinese measures, and a solid set of Australian PMI data.
Despite a still-firm US Dollar, AUD/USD managed to maintain mild gains, although technical indicators point to capped upside, particularly with the pair held below its 20-day Simple Moving Average (SMA) and momentum readings still in negative territory.
The Australian Dollar extended gains on Monday, rebounding after four consecutive sessions of losses. The upside was supported by optimism that the US may introduce more moderate reciprocal tariffs on April 2, easing market fears of an outright trade war escalation.
Australia's March preliminary PMIs surprised to the upside with the manufacturing component rising to a 29-month high of 52.6 and the services print hitting a two-month peak at 51.2. The Composite index climbed to 51.3, its strongest reading since August. The continued increase in private sector employment also suggested that February's dismal labor market report may not reflect a sustained downturn.
In China, new policy support measures aimed at boosting household income and domestic consumption added to risk appetite. The improved Chinese outlook bodes well for the Aussie, given Australia's reliance on commodity exports to its largest trading partner.
Meanwhile, the US Dollar remained steady following Friday's PMI reports. While the S&P Global Composite PMI rose, the Manufacturing index unexpectedly declined. Additionally, Fed officials, including Atlanta Fed President Raphael Bostic, emphasized persistent inflation uncertainty, noting that rate cuts may come later than previously expected.
On the monetary policy front, markets continue to price in a 25-basis-point Reserve Bank of Australia cut by July, with growing odds for a move as early as May. The Reserve Bank of Australia's next CPI indicator on March 26 will be key for gauging near-term action.
Source: Fxstreet
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