AUD/USD Price Forecast: Bears retain control amid escalating US-China trade war

• AUD/USD stages a goodish bounce from a multi-year low touched earlier this Monday.
• Bets for more aggressive Fed rate cuts weigh on the USD and lend support to the pair.
• The risk-off mood and the worsening US-China relations cap the upside for the Aussie.

The AUD/USD pair struggles to capitalize on its goodish intraday recovery from the 0.5930 area or the lowest level since March 2020 touched earlier this Monday amid a broad market sell-off. US President Donald Trump rattled global financial markets and announced s sweeping reciprocal tariffs last week, which fueled worries about the widening global trade war and could impact negatively on the world economy. Furthermore, the risk of a further escalation of trade tensions between the US and China – the world's two largest economies – continues to weigh on investors' sentiment amid persistent geopolitical risks.

US President Donald Trump imposed tariffs of at least 10% on all imported goods late last Wednesday, with China facing 54% levies under this new regime. In response, China’s Commerce Ministry announced on Friday that they will levy additional tariffs of 34% on all US imports. Meanwhile, US Commerce Secretary Howard Lutnick confirmed on Sunday that the tariffs would not be postponed and the policy would remain in place for days and weeks. Adding to this, Trump stated that he won't make a deal with China unless the trade deficit is solved, which weighs heavily on the China-proxy Australian Dollar (AUD).

On the geopolitical front, the Palestinian militant group Hamas said it fired a barrage of rockets at cities in Israel’s south on Sunday in response to Israeli massacres of civilians in Gaza. Furthermore, Israeli Prime Minister Benjamin Netanyahu approved the continuation of intensive activity by the Israeli military against Hamas and instructed that a vigorous response be carried out. Meanwhile, Russia stalled ceasefire talks and intensified attacks on Ukraine. In fact, Ukrainian officials said on Sunday that a Russian missile attack on Kyiv, which was the first large-scale attack in weeks, caused damage and fires in several districts. 

This turns out to be another factor that weighs on investors' sentiment and contributes to driving flows away from the perceived riskier Aussie. The US Dollar (USD), on the other hand, struggles to capitalize on Friday's move higher amid rising bets that a tariffs-driven US economic slowdown might force the Federal Reserve (Fed) to resume its rate-cutting cycle soon. In fact, the markets are now pricing in the possibility that the US central bank will lower borrowing costs in May and deliver at least four rate cuts by the end of this year. This, in turn, assists the AUD/USD pair to hold steady around the 0.6000 psychological mark.

Moving ahead, there isn't any relevant market-moving economic data due for release from the US on Monday, leaving the USD at the mercy of trade-related developments. Investors this week will further take cues from the release of the FOMC meeting minutes on Wednesday and the latest US consumer inflation figures on Thursday. Nevertheless, the aforementioned mixed fundamental backdrop warrants some caution before confirming that the AUD/USD pair has bottomed out in the near term and positioning for any meaningful recovery.

AUD/USD daily chart

Technical Outlook

From a technical perspective, last week's breakdown below the 0.6200-0.6190 horizontal support was seen as a fresh trigger for bearish traders against the backdrop of the recent repeated failures near the 100-day Simple Moving Average (SMA). The subsequent fall below the previous year-to-date low, around the 0.6090-0.6085 region, and the 0.6000 psychological mark, suggests that the path of least resistance for the AUD/USD pair is to the downside. That said, the Relative Strength Index (RSI) on the daily chart is already flashing overbought conditions, making it prudent to wait for some near-term consolidation of a modest recovery before positioning for any further losses.

In the meantime, the daily swing high, around the 0.6060 area, could offer an immediate hurdle ahead of the 0.6085-0.6090 region. Some follow-through buying beyond the 0.6100 mark might trigger a short-covering rally and lift the AUD/USD pair toward the 0.6200 round figure. The latter should act as a key pivotal point, which if cleared decisively should pave the way for some meaningful recovery in the near term.

On the flip side, bearish traders might now wait for weakness below the Asian session low, around the 0.5930 region, before placing fresh bets. The AUD/USD pair might then weaken further below the 0.5900 mark and aim to test the next relevant support near the 0.5820-0.5815 zone. The downward trajectory could extend further towards the 0.5755-0.5750 intermediate support en route to the 0.5700 round figure.