Is AUD/USD's Lazarus-like revival sustainable in the face of trade war escalation?

AUD/USD rebounds from five-year low

AUD/USD closed higher last week at 0.6290 (4.14%), rebounding from a five-year low of 0.5914. This strong recovery was driven by:

• Potential stimulus measures in China
• Improved risk sentiment from the pause of some United States (US) tariffs
• Reassurances from Federal Reserve (Fed) officials about market stability
• A weaker US dollar due to concerns over the US economic outlook and declining investor confidence.

China halts rare earth exports amid trade tensions

AUD/USD attempted further gains this morning. However, its rise above 0.6300 was halted after China announced it had stopped exporting several rare earth minerals to the US. This move targets a key US vulnerability and, along with the bilateral US-China tariffs announced last week, represents a significant escalation in the trade war, risking permanent trade dislocation between the two economic superpowers.

Although short-term risks for AUD/USD eased last week, uncertainty around US trade policy remains. High tariff rates and frequent changes are expected to continue undermining business and consumer confidence, leading to slower capital expenditures and trade, which could elevate recession risks.

Locally, this week’s Australian labour force report for March presents additional uncertainty for AUD/USD.

Labour force report preview

Date: Thursday, 17 April at 11.30am AEDT

Last month, employment in February fell by 52,800, against expectations for a 30,000 rise, marking the first drop since March 2024. The unemployment rate stayed at 4.1% due to a significant fall in the participation rate to 66.8% from 67.2%.

The Reserve Bank of Australia (RBA) noted in its April Board meeting, where interest rates were kept on hold, that labour market conditions 'remain tight.' The RBA will continue to 'pay close attention to developments in the global economy, financial markets, domestic demand trends, and the outlook for inflation and the labour market' to guide future monetary policy decisions.

In March, the Australian economy is expected to add 30,000 jobs, with the unemployment rate rising to 4.2%. A weaker-than-expected jobs report could increase expectations of an RBA rate cut in May, which is currently anticipated by the market after recent turmoil.

AU unemployment rate chart

AUD/USD technical analysis

After completing a triangle-style 'ABCDE' five-wave correction in recent months, AUD/USD downtrend resumed last week, diving to a fresh cycle low of 0.5914.

The subsequent rebound from the 0.5914 low to this morning's 0.6306 high has left a potential V-shaped bottom in place, which is often seen at medium-term highs and lows.

Should AUD/USD extend its gains above horizontal resistance at 0.6400 - 0.6420 coming from highs in February and March, it would increase the chances that AUD/USD bottomed at last week's 0.5914 low. Further confirmation would be a sustained break above the 200-day moving average (MA) at 0.6485.

Aware that until AUD/USD sees a break of resistance at 0.6400 - 0.6420 and then at 0.6485, downside risks remain that include a retest of last week's 0.5914 low.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 14 April 2025. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}