The Australian Dollar (AUD) is weakening against the US Dollar (USD) for the third consecutive session on Tuesday, with growing concerns over the potential economic impact of proposed tariff increases on Chinese goods by US President-Elect Donald Trump. Australia, being one of China’s largest export partners, is particularly vulnerable to such trade measures, which have weighed on the AUD.
Impact of US Protectionist Policies and Inflation Risks
Trump’s proposed fiscal policies, including tax cuts, trade tariffs, and increased government spending, have raised inflation concerns and could drive up demand for labor, investment, and overall spending. Analysts suggest that these policies may push inflation higher, prompting the Federal Reserve (Fed) to adopt a more restrictive stance on monetary policy. This, in turn, could strengthen the USD and put further pressure on the AUD/USD pair.
As traders anticipate the US inflation data to be released on Wednesday, the focus is on the Consumer Price Index (CPI) and Core CPI for October. The headline CPI is expected to show a 2.6% year-over-year increase, while core CPI is projected to rise 3.3%. Strong inflation data could reinforce expectations of continued Fed tightening, further supporting the USD.
Australian Consumer Confidence and Domestic Pressures
On the domestic front, the Westpac Consumer Confidence index rose by 5.3% to 94.6 points in November, marking its second consecutive month of improvement and the highest level in two and a half years. However, the index remains below the 100 mark, indicating that pessimists still outnumber optimists. Westpac Senior Economist Matthew Hassan highlighted that while consumers are feeling less financial strain and growing confidence in the economic outlook, concerns about future economic conditions persist.
China’s Weak Economic Data Adds to AUD’s Pressure
Another factor weighing on the AUD is the disappointing economic data from Australia’s largest trading partner, China. China’s Consumer Price Index (CPI) rose by just 0.3% year-over-year in October, slightly below market expectations and marking the lowest inflation rate since June. This weak inflation reading, combined with lower-than-expected stimulus measures, has dampened market sentiment, raising concerns about demand for Australian exports. China’s 10 trillion Yuan debt package, intended to ease local government financing pressures, has fallen short of providing direct stimulus to support economic growth.
RBA’s Hawkish Stance Could Limit Further AUD Losses
Despite these negative pressures, the downside for the AUD may be limited as Reserve Bank of Australia (RBA) Governor Michele Bullock reiterated the bank’s hawkish stance last week. Bullock emphasized the need for restrictive monetary policy due to ongoing inflation risks and a robust labor market. However, these factors have not been enough to counter the stronger USD, with the AUD continuing to face downward pressure.
Technical Analysis: Bearish Bias for AUD/USD
From a technical perspective, the AUD/USD pair is trading around 0.6570 on Tuesday, with the short-term outlook remaining bearish. The pair is below the nine-day Exponential Moving Average (EMA) at 0.6596, and the 14-day Relative Strength Index (RSI) is consolidating below the 50 level, signaling downward momentum.
On the downside, the AUD/USD pair could test its three-month low of 0.6512, recorded on November 6. Psychological support is seen at the 0.6500 level, while immediate resistance is at the 9-day EMA near 0.6596, followed by the 14-day EMA at 0.6609. A break above these levels could push the pair toward a three-week high at 0.6687, with 0.6700 serving as the next key resistance level.
In summary, the Australian Dollar remains under pressure due to global trade concerns, particularly regarding potential tariffs from the US, as well as soft economic data from China. While the RBA’s hawkish stance offers some support, it is unlikely to outweigh the broader strength of the US Dollar in the near term. Traders are now awaiting the US inflation data for further clues on future Fed policy and its impact on the AUD/USD pair.
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