The Australian Dollar (AUD) faced pressure on Wednesday, sliding against the US Dollar (USD) while geopolitical tensions eased between the United States and China. The market’s cautious tone arises from wider economic uncertainty and the upcoming US inflation print which may impact Federal Reserve expectations.
US-China Dialogue Calms Trade Fears but Fails to Lift AUD
The decline in AUD comes despite encouraging developments on the trade front. US Commerce Secretary Howard Lutnick confirmed that both countries have agreed on a framework to implement the Geneva Consensus, a potential turning point in resolving tariff disputes. His Chinese counterpart, Vice Commerce Minister Li Chenggang, emphasized that the communication was “rational and candid.”
Although these developments signal improved diplomatic relations, they haven’t provided immediate support for the Australian currency. As China is Australia’s largest trading partner, any significant improvement in bilateral trade could potentially lift AUD but for now, the broader market focus remains elsewhere.
US Dollar Strength and CPI Data Loom Large
The US Dollar Index (DXY) continues to gain ground, trading around 99.10, fueled by investor anticipation of the upcoming US Consumer Price Index (CPI) data. May’s CPI is expected to come in at 2.5% YoY, and a surprise here could shape near-term Fed policy sentiment.
Further, President Donald Trump added pressure on the Fed via Truth Social, calling on Chair Jerome Powell to lower interest rates, citing global easing trends. While the Fed remains independent, such commentary adds a layer of unpredictability that keeps the USD in demand.
Mixed Data From China and Australia Adds to AUD Volatility
The macroeconomic data from China is a mixed bag. China’s Consumer Price Index (CPI) decreased 0.1% YoY in May, equal to the 0.1% decrease reported in April, suggesting that deflationary pressure is alive and well. Similarly, the Producer Price Index (PPI) declined by 3.3%, widening the separation from last month’s data.
On the trade side, China’s surplus increased to CNY743.56 billion, though this increase came with a slowdown in exports and a decline in imports, indicating weak external demand.
In other news, Australia’s Trade Balance came in lower than expectations, reporting a 5,413M surplus in April versus the previously expected surplus of 6,100M. Exports fell 2.4% and imports rose by 1.1%, suggesting potential headwinds on Australia’s economic growth and currency.
AUD/USD Technical Outlook
As we enter Wednesday, the AUD/USD trades around 0.6510, currently sitting just above critical support areas. The pair continues to trade in an ascending channel, with the nine-day EMA at 0.6492 providing immediate support for the pair. A break below this level pushes the pair to 0.6416 (50-day EMA).
To the upside, the first area of resistance is the June 5th high of 0.6538, so depending on the momentum generated, the pair might accelerate up to 0.6687 and the top of the channel around 0.6710.
A look at the 14-day RSI shows it remains above 50, indicating a short-term bullish bias is in place; that said, this is very data-dependent for the US and remains open to changes in global sentiment.
Conclusion
Australia’s dollar remains under strain from weak Chinese data, a poor Australian trade print, and the overall stronger outcome of the USD, even considering the recent event which suggests U.S.-China tensions have de-escalated. Now that market participants have shifted their focus to targeting the U.S. CPI release which could inject volatility into the AUD/USD in the coming sessions.
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