FX.co ★ Emilly | AUD/USD

The Australian dollar (AUD) continued its fourth consecutive day of sideways trading against the US dollar (USD), remaining rangebound around the 0.6300 level during the first half of the European session. This prolonged period of consolidation reflects the market's cautious sentiment, primarily influenced by global trade uncertainties and evolving expectations regarding US monetary policy. The primary catalyst for this cautious outlook is US President Donald Trump's announcement of new tariffs on imported cars and light trucks. This development, coupled with the anticipated announcement of reciprocal tariffs and their potential impact on the global economy, has negatively affected global risk sentiment. Consequently, the risk-sensitive Australian dollar has experienced downward pressure, further exacerbated by a slight strengthening of the USD. However, the USD's intraday gains have been tempered by growing market expectations that the Federal Reserve will soon resume its interest rate cutting cycle. Current market pricing indicates a greater than 65% probability of a 25 basis point rate cut in June, driven by concerns about the potential economic repercussions of Trump's aggressive trade policies. This anticipation is preventing USD bulls from making aggressive bets, providing a degree of support to the AUD/USD pair.

Additionally, expectations of further stimulus measures from China, a key trading partner of Australia, have helped mitigate the AUD's losses. Traders remain hesitant to take strong directional positions, opting to await the release of the US Personal Consumption Expenditures (PCE) price index later in the North American session. This key US inflation data is expected to significantly influence USD demand and provide fresh impetus to the AUD/USD pair, as it will impact expectations regarding the Federal Reserve's policy trajectory. Domestically, the Reserve Bank of Australia (RBA) is facing its own set of challenges. With core inflation remaining stubbornly high at 3.2%, unemployment declining, and economic growth showing signs of recovery, the RBA is expected to gradually cut interest rates. The possibility of a rate cut in May hinges on the release of first-quarter inflation data, with approximately 75% of economists anticipating such a move. However, Westpac economists maintain their forecast of an unchanged cash rate at the RBA's upcoming policy meeting on April 1st, deeming it a "non-issue" within the broader monetary policy context, while still maintaining their expectation of a May rate cut. Politically, Australian Prime Minister Anthony Albanese announced on Friday that a national election will be held on May 3rd, initiating a five-week campaign that is expected to focus heavily on the cost of living. While Albanese's Labor Party secured a majority in the 2022 federal election, recent polls suggest a close race with the opposition Liberal-National coalition once minor party votes are factored in. This political uncertainty further adds to the complex landscape influencing the AUD's movements.