The Australian Dollar (AUD) continues to decline against the US Dollar (USD) on Tuesday, pressured by heightened market concerns following President-elect Donald Trump’s proposed tariff hikes on Chinese, Mexican, and Canadian imports. Despite these challenges, the AUD’s downside may be limited, supported by a hawkish outlook from the Reserve Bank of Australia (RBA) and upcoming domestic economic data.
Impact of US Tariff Plans
The AUD remains under pressure due to concerns over Trump’s trade policy, including a 10% increase in tariffs on all Chinese goods and a 25% tariff on imports from Mexico and Canada. These developments are particularly concerning for Australia, as any slowdown in China’s economy would directly impact Australian trade.
China’s Ambassador to Australia emphasized that US trade policies would have broad repercussions, with China expecting to engage with the US to manage the relationship. The uncertainty surrounding US-China relations continues to weigh on the Australian Dollar.
Australian Dollar Support from RBA Hawkishness
Despite the broader negative sentiment, the AUD may find support from the RBA’s cautious approach to inflation. The RBA’s November meeting minutes revealed concerns over potential inflationary pressures, signaling that the bank remains committed to maintaining a restrictive monetary policy stance. While the RBA stated there was no immediate need for a rate change, it emphasized the flexibility to adjust policy based on economic data.
Markets are now focused on Australia’s Monthly Consumer Price Index (CPI) for October, due Wednesday, which could influence expectations regarding future monetary policy decisions.
Fed Outlook and US Economic Data
The US Dollar faces challenges despite positive economic data, including strong preliminary S&P Global US Purchasing Managers’ Index (PMI) readings, which have supported expectations that the Federal Reserve may slow the pace of rate cuts. Federal Reserve officials, including Chicago Fed President Austan Goolsbee and Minneapolis Fed President Neel Kashkari, indicated that the Fed may continue lowering rates toward a neutral stance, though downside risks to the USD remain limited.
The latest PMI data shows robust growth in US private sector activity, with the Composite PMI rising to 55.3 in November, indicating the strongest growth since April 2022. However, the AUD’s weakness persists amid a drop in Australia’s PMI, which showed a contraction in the country’s private sector for the second time in three months.
Australian Economic Outlook
Australia’s four largest banks are predicting the RBA will cut rates in 2024, with some institutions forecasting the first cut as early as May. This view aligns with market sentiment, as weaker economic data, including a contraction in both manufacturing and services PMI, contributes to expectations of looser monetary policy.
Technical Analysis
The AUD/USD pair remains under bearish pressure, hovering around 0.6470. The technical outlook suggests a continued downtrend, with the pair potentially testing its yearly low of 0.6348. Resistance lies at the nine-day and 14-day exponential moving averages (EMA) around 0.6503 and 0.6512, respectively. A break above these levels could lead to a potential rally, but for now, the bearish momentum dominates.
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