How will Chinese stimulus and US tariff threats impact AUD/USD this week?

Will AUD/USD rebound from 0.6272 ahead of key CPI data?

The AUD/USD ended lower last week at 0.6272 (-0.85%), snapping a two-week winning streak. Three primary factors contributed to its decline:

• A mixed Australian jobs report that reinforced expectations—ours included—of a Reserve Bank of Australia (RBA) rate cut in May
• Short covering in the US dollar ahead of month-end rebalancing flows and the 2 April tariff deadline set by US President Trump for reciprocal tariffs
• The AUD/USD was also impacted by the lack of specifics regarding the size and timing of China's latest stimulus announcement

This week, the key local drivers for the AUD/USD will be Wednesday's Monthly CPI for February, previewed below. The Federal Government budget is set to be handed down on Tuesday night; however, with most new initiatives already leaked in the lead-in, it is not expected to be a market mover.

Towards the end of the week, month-end and quarter-end rebalancing flows in stocks and FX will be factors to watch. Typically, this process involves selling the winners and buying the losers, suggesting potential buying of the USD and selling of the euro and British pound.

Also, at the end of this week and ahead of the 2 April date for US President Trump's proposed "reciprocal tariffs," speculation is likely to intensify regarding their specifics, timeline, and duration of implementation. The expectation is that the process will be more targeted, organised and structured than previous actions. Whatever numbers are announced on 2 April are likely to be negotiated down from there. Should this expectation prove to be correct, it should be supportive of the Australian dollar.

Monthly CPI indicator

Date: Wednesday, 26 March at 11.30am (AEDT)

The Monthly CPI indicator rose by 2.5% year-on-year (YoY) in January, unchanged from the prior month but below expectations of 2.6%. Annual trimmed mean inflation rose 2.8% in December, up slightly from 2.7% in December.

The largely in-line inflation numbers amid sluggish growth opened the door for the RBA to cut rates by 25 basis points (bp) at its Board meeting in February. However, the RBA sounded cautious, noting that future rate cuts depended on the continuation of the disinflationary trend.

"The forecasts published today suggest that, if monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range. In removing a little of the policy restrictiveness in its decision today, the Board acknowledges that progress has been made but is cautious about the outlook."

The expectation for this month (February) is for headline inflation to fall to 2.4% YoY from 2.5% YoY, while the trimmed mean is expected to ease to 2.7% YoY from 2.8%.

The Australian interest rate market begins this week, pricing in 18 basis points of RBA rate cuts for May, with a cumulative 68 basis points of RBA rate cuts priced for 2025, up from 59 basis points this time last week.

All groups monthly CPI indicator, Australia, annual movement (%)

AUD/USD technical analysis

After striking a low of 0.6087 in early February, the AUD/USD commenced a rally, which is viewed as a countertrend rally, or, in other words, a correction to the decline from the September high of 0.6942 to the 0.6087 low.

While the AUD/USD holds above trend channel support at 0.6250/30, allow the AUD/USD to undertake another corrective leg higher towards resistance at 0.6520, coming from the trend channel and the 200-day moving average.

If this bounce were to play out as outlined, it would be viewed as a potential shorting opportunity in the AUD/USD.

Aware that if the AUD/USD first sees a sustained break of support at 0.6250/30, it would likely signal that the correction is complete, and the AUD/USD is likely to retest the 0.6087 low.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of March 24, 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.}