The Australian Dollar (AUD) traded lower against the US Dollar (USD) on Friday, as concerns over potential tariff hikes on Chinese goods under Donald Trump’s proposals weighed on the currency. Given Australia’s significant export relationship with China, such measures could pose downside risks for the AUD/USD pair.
However, the Australian Dollar managed to recover more than 1% earlier in the week, driven by a pullback in the USD following the Federal Reserve’s decision to cut interest rates. Support for the AUD also came from stronger-than-expected trade balance data from China, released on Thursday, further buoying sentiment around the currency.
The Federal Open Market Committee (FOMC) lowered its key overnight borrowing rate by 25 basis points (bps), bringing the target range to 4.50%-4.75% during its November meeting. With the USD facing challenges, traders are now looking ahead to the release of the preliminary US Michigan Consumer Sentiment data later on Friday.
US Economic Data and Fed Outlook
Federal Reserve Chair Jerome Powell reiterated that the central bank is proceeding with interest rate cuts in response to ongoing tightness in monetary policy, despite inflation showing signs of easing toward the Fed’s 2% target. Powell stressed that future rate decisions would be data-dependent, with the Fed continuing to evaluate economic indicators to set the pace of policy adjustments.
In other US economic data, initial jobless claims rose to 221,000 for the week ending November 1, matching market expectations and marking an increase from the previous week’s revised total of 218,000.
Market Movers: Trade Balances and Economic Indicators
The US Dollar Index (DXY), which measures the USD against six major currencies, improved to near 104.50, supported by US Treasury yields at 4.20% for 2-year bonds and 4.33% for 10-year bonds. Meanwhile, China’s trade surplus surged to $95.27 billion in October, exceeding expectations and previous figures. Exports rose 12.7% year-on-year, far surpassing the anticipated 5% increase, while imports fell by 2.3%, a sharper drop than the expected decline.
Australia’s trade surplus for September fell short of expectations, dropping to 4,609 million AUD, down from the prior month’s 5,284 million AUD. Exports decreased by 4.3%, with a decline in imports of 3.1%.
RBA and China-Australia Trade Relations
The Reserve Bank of Australia (RBA) held its Official Cash Rate steady at 4.35% this week, marking its eighth consecutive pause. Governor Michele Bullock maintained a hawkish tone, citing ongoing inflation risks and a strong labor market. Australia’s Judo Bank Services PMI for October showed slight improvement, rising to 51.0, signaling modest growth in the services sector.
Meanwhile, China’s Commerce Minister met with Australia’s Trade Minister Don Farrell, signaling hopes for continued improvement in trade relations between the two nations, with an emphasis on fair and equitable treatment for Chinese companies operating in Australia.
Technical Analysis: AUD/USD Trading Above Key Levels
The AUD/USD pair is trading near 0.6660 on Friday, showing a shift in momentum on the daily chart. The pair has moved above both the nine- and 14-day Exponential Moving Averages (EMAs), suggesting short-term bullish momentum. The 14-day Relative Strength Index (RSI) has also crossed above the 50 mark, supporting the ongoing positive sentiment.
On the upside, the AUD/USD pair could test the psychological level of 0.6700. In terms of support, the pair may find initial support at the 14-day EMA around 0.6630, with additional support from the nine-day EMA at 0.6624. A break below these levels could see the pair target its three-month low near 0.6512, with further psychological support at 0.6500.
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