The Australian Dollar (AUD) held firm following Treasurer Jim Chalmers’ presentation of the 2025/26 federal budget, which included tax cuts totaling A$17.1 billion over two rounds. These measures are seen as politically motivated but could also support domestic consumption. Australia’s projected budget deficits stand at A$27.6 billion for 2024–25 and A$42.1 billion for 2025–26, while GDP is forecasted to grow by 2.25% and 2.5% in fiscal years 2026 and 2027, respectively.
The AUD remains supported by expectations that the Reserve Bank of Australia (RBA) will keep interest rates unchanged in April, following its first rate cut in four years back in February. RBA Assistant Governor Sarah Hunter reaffirmed a cautious stance, emphasizing the need to monitor U.S. policy developments and inflation trends.
Australian economic data remains upbeat, with Judo Bank’s Manufacturing PMI rising to 52.6 in March from 50.4, and the Services PMI climbing to 51.2. The Composite PMI improved to 51.3, indicating broad-based expansion.
Support for the Aussie is also fueled by renewed optimism around Chinese stimulus measures. China’s Communist Party and State Council have proposed plans to boost consumption by raising wages and easing household financial burdens. Given Australia’s strong trade ties with China, any recovery in Chinese domestic demand would likely benefit Australian exports.
However, near-term headwinds remain. Market sentiment is cautious ahead of U.S. President Donald Trump’s expected tariff announcement on April 2. While Trump hinted that some countries may be exempt, uncertainty persists. Meanwhile, the U.S. Dollar Index (DXY) is steady at nearly 104.30 after the mixed U.S. PMI data.
The U.S. Composite PMI rose to 53.5 in March, driven by a sharp service rebound (Services PMI: 54.3), while Manufacturing PMI dropped to 49.8. Comments from Fed officials were mixed—Chair Jerome Powell struck a hawkish tone. At the same time, Atlanta Fed President Raphael Bostic trimmed rate cut expectations for 2025 due to persistent inflation and trade risks.
Trade Idea: Consider buying AUD/USD near 0.6520, targeting 0.6625, as Australian fundamentals remain supportive. However, stay cautious of Trump’s tariff announcement and its potential impact on global risk sentiment.