Buying AUDUSD on tariff elimination against Australia

On Monday, the AUDUSD quotes grew up to 0.62764. Daily volatility amounted to 0.879%. On Tuesday, the rate started at the level of 0.62721.

Monday's gains were driven by the protectionist policies of the Trump administration, which imposed 25% duties on steel and aluminum, bringing uncertainty to global trade.

Australia, though a small exporter of finished steel products (1% of steel and 2% of aluminum out of total US imports), is the world's largest supplier of iron ore. This makes the issue of trade restrictions significant for the Australian economy. The protectionist measures may have contradictory effects on the US economy as similar actions in 2018 led to a slump in manufacturing and job losses in 2019. This could result in further deterioration in the country's labor market. The deterioration has occurred before, as evidenced by the US Employment Trends Index, which fell from 109.23 to 108.35.

However, Australia is unlikely to be subject to tariffs. Duties will not apply to the country due to its alliance with the United States.

Australia's domestic economic situation is also affecting AUDUSD. The Business Conditions Index of the National Australia Bank (NAB) came in at +6, dropping by 3 points and undoing the previous increase. However, the Business Confidence Index showed an improvement, reaching +4 compared to -2 a month earlier.

Based on this information, it looks like the Reserve Bank of Australia will cut interest rates. This will be the first reduction since the beginning of the pandemic in 2020. Such a move will reflect a slowdown in the country's inflation.

Thus, the US protectionist policy may put pressure on Australian exports, but the probability of not imposing trade restrictions will partially offset this impact. The decline in the US employment level creates conditions for a weaker US dollar, while expected interest rate cuts in Australia may put pressure on the Australian dollar.

The next important event will be the publication of the US Consumer Price Index. The CPI is expected to remain at the same level as a month earlier.

Technical analysis shows mixed prospects. The MACD indicator currently suggests the presence of an upward trend. The intersection of the MACD lines and the upward signal line can serve as a potential signal to buy the asset. The RSI indicator shows that the asset is in the neutral zone instead of the overbought one, where no trend can be said to exist. The macroeconomic indicator, on the contrary, signals the need to sell the asset.

Current recommendation:

Buy at the current price. Take profit – 0.63294. Stop loss – 0.62300.