AUD/USD Slides Toward 0.6350 as Trade War Fears Dent Aussie Sentiment

The Australian Dollar (AUD) extended its losses against the US Dollar (USD) on Thursday, with the AUD/USD pair tumbling to 0.6350 during Asian hours. The renewed uncertainty surrounding US-China and US-Japan trade tensions continues to weigh on market confidence, leading to a cautious risk environment.

Despite a brief bounce earlier in the week, AUD/USD remains capped below the key 200-day SMA, currently positioned at 0.6470. This level acts as critical resistance, with the April high of 0.6439 and November peak at 0.6687 also in focus should the pair gain momentum.

📉 Key Technical Levels to Watch

• Resistance: 0.6400 • 0.6439 • 0.6470
• Support: 0.6350 • 0.6200 • 0.5913
• RSI (14): 56 (neutral)
• ADX: 17 (suggesting weak trend strength)

While RSI shows room for upside, the weak ADX hints at limited momentum behind the recent rebound. A decisive break below 0.6350 could open the door to deeper losses, exposing the 2020 pandemic low near 0.5506 if global risk sentiment deteriorates further.

🌐 Trade War Anxiety Caps Aussie Dollar Strength

Market optimism over easing trade tensions faded quickly after US President Donald Trump signaled a potential tariff reduction—but provided no timeline or concrete plan. Although the prospect of lower tariffs lifted sentiment temporarily, investors remain wary amid ongoing geopolitical tensions.

Australia’s economy is heavily reliant on exports to China, its largest trading partner. Any negative shift in trade dynamics between Beijing and Washington directly impacts the AUD, making it a high-beta currency sensitive to trade-related headlines.

🏦 Central Banks Hold Steady Amid Uncertainty

The Reserve Bank of Australia (RBA) and the US Federal Reserve remain cautious in their policy stance:

• RBA: Held rates at 4.10% in April, citing sticky inflation and labor market resilience. Rate cut odds for May are priced at ~70%.
• Fed: Held steady at 4.25%-4.50%. Chair Powell emphasized inflation control as top priority, even amid stagflation concerns.

📊 Positioning Shift: Traders Turn Less Bearish

CFTC data reveals a reduction in net short positions on the Aussie, now at a five-week low near 59,000 contracts. Falling open interest suggests some speculators are exiting bearish trades, anticipating a possible rebound if trade tensions ease or commodity prices improve.

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Conclusion: With the global macro backdrop still fragile, AUD/USD remains vulnerable to headline-driven volatility. Watch for fresh developments in US-China negotiations and key economic data from both Australia and the US. A sustained move above 0.6470 would signal bullish momentum, while a drop below 0.6300 could mark deeper downside risks.

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