Australian Dollar extends losing streak as US Dollar holds gains amid increased risk aversion

• The Australian Dollar depreciates following a disappointing Private Capital Expenditure on Thursday.
• Australia’s Private Capital Expenditure unexpectedly contracted by 0.2% QoQ in Q4 2024, falling short of market expectations for 0.8% growth.
• The US Dollar continues to strengthen as traders evaluate the economy’s performance and the outlook on tariffs.

The Australian Dollar (AUD) loses ground against the US Dollar (USD) for the fifth consecutive day on Thursday. The AUD/USD pair edges higher despite disappointing Australian Private Capital Expenditure data, which unexpectedly contracted by 0.2% quarter-on-quarter in Q4 2024, missing market forecasts of 0.8% growth. This follows an upwardly revised 1.6% expansion in the previous quarter.

Reserve Bank of Australia Deputy Governor Andrew Hauser said on Thursday that he expects more positive news on inflation but emphasized the importance of seeing this progress materialize first. He noted that the tightness in Australia’s labor market remains a challenge for controlling inflation.

On Thursday, Lu Lei, Deputy Governor of the People's Bank of China (PBOC), proposed that the Bank should take an active role in supporting fundraising efforts, including issuing special treasury bonds, to help major state-owned banks strengthen their Common Equity Tier 1 (CET1) capital. Note that any change in the Chinese economy could impact the AUD as China and Australia are close trading partners.

The AUD faced headwinds on Wednesday after Australia’s monthly Consumer Price Index (CPI) rose 2.5% year-over-year in January, matching December’s increase but falling short of the market’s 2.6% growth forecast.

The AUD/USD pair remains under pressure amid rising risk sentiment following US President Donald Trump’s statement earlier this week that sweeping US tariffs on imports from Canada and Mexico “will go forward” after the current month-long delay expires next week. Adding to the pressure, the Trump administration plans to tighten chip export controls on China, one of Australia’s key trading partners.

Australian Dollar could depreciate due to increased risk aversion

• The US Dollar Index (DXY), which measures the USD against six major currencies, gains ground as traders assess the strength of the economy and tariff outlook. The DXY extends its gains to near 106.50 at the time of writing.
• Federal Reserve Bank of Atlanta President Raphael Bostic said late Wednesday that the Fed should hold interest rates where they are, at a level that continues to put downward pressure on inflation, per Bloomberg.
• US Commerce Secretary Howard Lutnick said late Wednesday that April 3 serves as the baseline for reciprocal tariff data. Lutnick also stated that he would not allow Chinese vehicles in the US, citing China as his major concern.
• US Treasury Secretary Scott Bessent expressed his commitment to working with Congress to make President Trump's tax cuts permanent.
• The White House said late Wednesday that US President Donald Trump issued an executive order aimed at implementing the Department of Government Efficiency's (DOGE) cost-cutting drive, per Reuters. The executive order requires agencies to justify spending, limit travel, and identify surplus federal properties that can be sold.
• President Trump signed a memorandum on Friday instructing the Committee on Foreign Investment in the United States (CFIUS) to limit Chinese investments in strategic sectors. Reuters cited a White House official saying that the national security memorandum seeks to encourage foreign investment while safeguarding US national security interests from potential threats posed by foreign adversaries like China.
• The People’s Bank of China (PBOC) injected CNY300 billion on Tuesday via the one-year Medium-term Lending Facility (MLF), maintaining the rate at 2%. Additionally, the PBOC injected CNY318.5 billion through seven-day reverse repos at 1.50%, consistent with the prior rate.
• According to a Wall Street Journal report on the Australian Dollar’s outlook from the Commonwealth Bank of Australia (CBA), heightened trade war risks driven by Trump have become a major concern. China’s response to these trade threats will be a key factor shaping the future performance of the AUD.
• The Reserve Bank of Australia (RBA) lowered its Official Cash Rate (OCR) by 25 basis points to 4.10% last week—the first rate cut in four years. Reserve Bank of Australia (RBA) Governor Michele Bullock acknowledged the impact of high interest rates but cautioned that it was too soon to declare victory over inflation. She also emphasized the labor market's strength and clarified that future rate cuts are not guaranteed, despite market expectations.

Australian Dollar tests 0.6300 support as a bearish bias emerges

The AUD/USD pair hovers around 0.6300 on Thursday. Analysis of the daily chart indicates that the pair stays below the nine- and 14-day Exponential Moving Averages (EMAs), signaling weakening short-term price momentum. Moreover, the 14-day Relative Strength Index (RSI) remains below 50, reinforcing the prevailing bearish outlook.

The AUD/USD pair tests immediate support at the psychological level of 0.6300. A break below this threshold could push the pair toward the 0.6087 region, its lowest level since April 2020, recorded on February 3.

On the upside, the AUD/USD pair may face immediate resistance at the 14-day EMA of 0.6323, followed by the nine-day EMA at 0.6329. A decisive break above these levels could strengthen short-term price momentum, paving the way for the pair to challenge the two-month high of 0.6408, reached on February 21.

AUD/USD: Daily Chart

(This story was corrected on February 27 at 02:15 GMT to say, in the first paragraph, that "The Australian Dollar (AUD) holds gains against the US Dollar (USD) on Thursday," not Wednesday.)