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    Aussie Slips as US-China Trade War Escalates

    February 4, 2025

    Key Points:

    • The Aussie (AUDUSD) drops below $0.62 as US tariffs on China take effect.
    • China retaliates with levies on US energy and agricultural exports.
    • RBA rate cut expectations grow, with trade data in focus.

    The AUDUSD pair extended its losses on Tuesday, falling below $0.62 as renewed trade tensions between the US and China weighed on risk-sensitive assets. The latest round of US tariffs on Chinese goods took effect, triggering retaliatory duties from Beijing on key US exports, including oil, gas, coal, and farm equipment, effective February 10.

    Given Australia’s strong trade ties with China, the Aussie, often seen as a yuan proxy, bore the brunt of market fears. Market participants are now bracing for further trade disruptions and possible policy responses from Beijing, keeping AUDUSD under pressure.

    Technical Overview

    Image: AUDUSD declines 0.58%, facing resistance at 0.62329 while testing short-term support as momentum weakens. Learn more on the VT Markets app.

    AUDUSD closed at 0.61895, posting a 0.58% decline after opening at 0.62253 and reaching a session high of 0.62329. The price faced selling pressure, erasing some of its earlier gains and settling near intraday lows.

    The moving averages (MA 5,10,30) indicate a mixed trend. Short-term MAs initially showed bullish momentum, but the recent dip has brought the price below the shorter averages, suggesting possible weakness. The longer-term MA remains above, acting as a dynamic resistance level.

    The MACD (12,26,9) reflects this shift in momentum. While it previously signaled bullish strength, the histogram has started to flatten, and the MACD line is nearing the signal line, hinting at potential consolidation or a further pullback.

    Key support is established at 0.6087, the recent low, while resistance remains at 0.62329, the latest high. A move above resistance could reignite buying interest, whereas a break below support may extend losses toward lower levels.

    Temporary Reprieve for North American Trade Partners

    Elsewhere, President Trump agreed to delay tariffs on Mexico and Canada for a month following negotiations with their leaders. While this move eased immediate trade concerns in North America, broader uncertainty over global trade policy continues to unsettle markets.

    All Eyes on the RBA Next

    The next test for the Aussie comes on Thursday with the release of December trade figures, which will provide a clearer picture of Australia’s export performance amid weakening global demand.

    With inflation cooling and economic activity slowing, expectations are rising that the Reserve Bank of Australia (RBA) may move to cut interest rates this month. If the RBA adopts a dovish tone, AUDUSD could remain vulnerable, potentially testing lower support levels in the near term.

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