The Australian dollar is struggling, slipping below $0.633 as weaker-than-expected domestic data heightens expectations for further monetary easing by the Reserve Bank of Australia (RBA). With inflation steady at 2.5%, missing forecasts of a slight increase, the case for a cautious central bank is growing stronger. This puts additional downward pressure on the currency, as traders price in a more dovish policy outlook.
Construction output also missed the mark, rising only 0.5% in Q4, well below market expectations of 1.0% and slowing sharply from the 2.0% growth in Q3. This indicates that higher interest rates have already begun weighing on economic activity, reinforcing the case for further easing by the RBA in the coming months.
While the RBA’s recent 25-basis-point rate cut to 4.1% was widely expected, policymakers have signalled a more cautious approach moving forward. However, the recent string of weak economic data, combined with external pressures, may force them to act sooner than anticipated. Futures markets are now pricing in at least one more rate cut by mid-2025, a shift that has further weighed on the Aussie dollar.
Beyond domestic concerns, the Aussie dollar is facing additional headwinds from US trade policy. President Donald Trump’s latest tariff proposals, particularly an investigation into potential duties on copper imports, have raised fears of increased trade disruptions. Given that Australia is a major exporter of metals and raw materials, these developments could further weaken its trade outlook.
The AUD/USD pair is trading around 0.6327, reflecting a mild decline of 0.09% as the pair remains under pressure. Key resistance is at 0.6329, with a breakout above this level potentially leading to a recovery toward 0.6413, aligning with the 38.2% Fibonacci retracement.
Picture: AUD/USD dips to 0.6327 as bearish momentum builds, as seen on the VT Markets app
On the downside, support is found at 0.6239, with a break below signalling a return to bearish momentum, possibly targeting 0.6087. The MACD remains bearish, and the pair currently trades below its 5-day moving average (0.63559), reinforcing short-term downside risks.
Fundamentally, traders are awaiting upcoming Australian inflation data, which could influence the Reserve Bank of Australia’s (RBA) monetary policy outlook. The market remains cautious, keeping AUD/USD range-bound, with intraday bias neutral for now. If inflation surprises to the upside, it could bolster the Australian dollar, while weaker-than-expected data may drive further declines. Investors should closely watch economic indicators and cross-border developments for signals on the pair’s next significant move.
Traders are now watching for any updates from the RBA’s next policy meeting and whether policymakers will acknowledge the need for faster rate cuts. Additionally, US inflation data and Federal Reserve comments will influence broader USD strength, which remains a key factor for AUD/USD movements.
The Aussie dollar remains vulnerable in the near term, with $0.630 serving as a critical support level. A break below this could see further declines toward $0.625, especially if US economic data outperforms expectations, strengthening the greenback. However, any surprise hawkish signals from the RBA could limit losses.
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