AUD/USD, NZD/USD Outlook: US Dollar Slides as Tariff Risks Resurface

The US dollar index fell below 100 amid widening cracks in the US economy, as highlighted by a contraction in ISM manufacturing, and renewed trade tensions instigated by Donald Trump. Technically, the USD index is clinging to the December low (98.59) and displays what resembles a head and shoulders top, suggesting further downside risk towards the 98 handle and April low (97.68) if tariffs are reinstated. Meanwhile, the New Zealand dollar has gained strength against the USD following the RBNZ's indication of a potential end to its easing cycle.

Analysis

The US dollar (USD) exhibits pronounced weakness, trading below the 100 mark on the USD Index, driven by deteriorating US economic indicators and escalating trade tensions. The ISM manufacturing PMI contracted for a third consecutive month, falling to 48.5, its fastest pace of decline since November, with new orders and employment also contracting for a fourth month at 76.6 (from 47.2 prior, though still contracting) and 46.8 respectively, while prices paid remain elevated near a three-year high at 69.4. Compounding this, President Trump has set a June 4 deadline for trade partners, threatening tariff reinstatement, which could further pressure the USD. Technically, the USD Index closed with a bearish engulfing candle after failing at the February bearish trendline and is precariously positioned near its December low (98.59), with a potential head and shoulders top formation suggesting further downside. While the daily RSI (2) indicates near-term oversold conditions, the RSI (14) below 50 confirms underlying negative momentum, targeting the 98.00 handle and the April low (97.68). In contrast, the New Zealand dollar (NZD) has shown strength, with NZD/USD emerging as the strongest FX major on Monday, supported by the Reserve Bank of New Zealand's recent 25bp rate cut to 3.25% and signals that its easing cycle may be nearing its end; NZD/USD's daily chart shows a more bullish trend structure than AUD/USD and nears its November high. The Australian dollar (AUD) rose 1% against the USD, pushing AUD/USD to the 0.64-0.65 range, but the 0.65 level remains a significant resistance. USD/CAD is at a critical juncture, testing its 2021 bullish trendline, with its direction heavily dependent on the tariff outcome regarding Canada. USD/CHF has formed a head and shoulders top, projecting a downside target around 0.7895, and is considered a cleaner proxy for USD movements.

Key Decisions for Investors

• Investors should closely monitor the June 4 trade tariff deadline, as the reinstatement of tariffs is likely to significantly exacerbate US dollar weakness and increase market volatility.
• Given the confluence of negative economic data, bearish technical patterns for the US Dollar Index (such as the head and shoulders top and key support at 98.59), and prevailing trade uncertainties, consider strategies that could benefit from further USD depreciation, such as short USD positions or currency hedges.
• For expressing a bearish USD view, NZD/USD appears to be a preferred vehicle over AUD/USD due to the RBNZ's hawkish shift and stronger bullish technicals for NZD/USD; alternatively, a short AUD/NZD position could be considered based on this relative strength divergence.
• Exercise caution with AUD/USD around the 0.6500 resistance level and USD/CAD near its multi-year trendline, as these pairs are at pivotal technical points highly sensitive to imminent trade news, presenting opportunities for breakouts or sharp reversals.
• Consider USD/CHF for direct exposure to US dollar sentiment, as its price action is noted to be a cleaner reflection of USD Index movements and currently exhibits a bearish continuation pattern.