On Monday (February 3rd) during the European trading session, the AUD/USD fell to 0.6158, a decrease of 0.82%. After Trump announced massive tariffs and triggered a trade war, the AUD/USD exchange rate fell sharply. After the Federal Reserve's decision and the release of US inflation data, the Australian dollar/US dollar exchange rate fell to a low of 0.6210, the lowest point since January 2025.

The main catalyst for the Australian dollar/US dollar exchange rate is Trump's decision to impose high tariffs on imported goods. Trump believes that these tariffs will help reduce the deficit. Last December, the US deficit surged to $122.1 billion. This growth is due to companies rushing to purchase goods before tariffs.

Tariffs may lead to higher inflation and slower economic growth, a situation known as stagflation. This will make it difficult for the Federal Reserve to cope, as high interest rates may lead to a slowdown in economic growth. On the other hand, low interest rates will lead to higher inflation.

Before Trump imposed tariffs, the Federal Reserve kept interest rates unchanged at its first monetary policy meeting. It disregards Trump's demand for low interest rates and implies that it will maintain a cautious tone. Most economists expect the Federal Reserve to cut interest rates for the first time in July.

The Australian dollar/US dollar also fell after Australia released its fourth quarter inflation data, which showed that the Reserve Bank of Australia would cut interest rates. The data shows that the overall Consumer Price Index (CPI) decreased from 2.8% in the third quarter to 2.4% in the fourth quarter, lower than the expected median of 2.5%.

More data shows that the revised CPI mean has decreased from 3.6% to 3.2%, and the weighted mean has decreased from 3.7% to 3.4%. These numbers mean that the Reserve Bank of Australia will start cutting interest rates later this month. This will be the first interest rate cut since the outbreak of the pandemic.

AUD/USD Technical Analysis

The Australian dollar/US dollar exchange rate rose and reached a peak of 0.6330 in January. Subsequently, the Australian dollar/US dollar experienced a reversal and fell to the next key support level of 0.6200, which was the lowest level on January 25th. The currency pair has been consistently below the 50 day moving average and the median of the Bollinger Bands.

Further data shows that the Average Direction Index (ADX) fell to 19.68, the lowest level since September last year. The momentum indicator has also slightly decreased. Therefore, the currency pair may continue to decline as the seller's target is the key support level of 0.6130. The stop loss point is at 0.6330.