The Australian Dollar (AUD) is facing continued downward pressure against the US Dollar (USD) despite a stronger-than-expected Private Capital Expenditure (CapEx) report released on Thursday. Australia’s total capital expenditure for the third quarter rose by 1.1% quarter-on-quarter, surpassing market expectations of 0.9% and recovering from a 2.2% decline in the previous quarter. However, the AUD/USD pair remains subdued as markets anticipate reduced trading activity due to the US Thanksgiving holiday.
The Australian Dollar is also facing headwinds from geopolitical developments, including the United States’ plans to unveil additional measures on Monday to curb China’s progress in artificial intelligence. Given the strong trade ties between Australia and China, any negative shifts in China’s economy could have a ripple effect on Australian markets.
AUD Faces Pressure from Tariff Fears and Global Risk Aversion
Adding to the bearish outlook for the AUD is market sentiment dampened by President-elect Donald Trump’s announcement of a 10% increase in tariffs on all Chinese goods entering the US. This has raised concerns of a potential global trade slowdown, further weighing on the Australian Dollar.
Despite these challenges, the downside for the AUD has been somewhat contained due to the Reserve Bank of Australia‘s (RBA) hawkish stance. Australia’s Consumer Price Index (CPI) inflation for October rose by 2.1% year-over-year, unchanged from September but below market expectations of 2.3%. This marks the lowest inflation rate since July 2021, remaining within the RBA’s target range for the third consecutive month.
US Economic Data and Fed‘s Cautious Rate Cut Stance Strengthen USD
Meanwhile, the US Dollar has gained ground following stronger-than-expected inflation data. The US Personal Consumption Expenditures (PCE) Price Index rose by 2.3% year-over-year in October, up from 2.1% in September. The core PCE, which excludes food and energy prices, increased by 2.8%, slightly higher than the previous month’s 2.7%. These figures align with market expectations, signaling persistent inflationary pressures in the US.
The Federal Reserve (Fed) remains cautious about cutting interest rates in the near term, following the release of the latest Federal Open Market Committee (FOMC) minutes, which highlighted a solid labor market and easing inflation. Market expectations are shifting, with futures traders now assigning a 57.7% probability of a 25 basis point rate cut in December, down from prior forecasts.
RBA Rate Cut Expectations Push AUD Lower
Expectations surrounding the Reserve Bank of Australia’s (RBA) rate cut timeline also weigh on the AUD. Australia’s four largest banks have revised their forecasts, with Westpac and NAB now predicting the RBA’s first rate cut in May, rather than February. CBA and ANZ remain cautious, forecasting a rate cut in February.
Technical Analysis: AUD/USD Tests Key Levels
The AUD/USD pair is trading near the 0.6500 level on Thursday, with technical indicators showing growing bearish momentum. The pair remains within a descending channel, and the 14-day Relative Strength Index (RSI) is below 50, signaling continued negative sentiment.
On the downside, the AUD/USD could test its four-month low of 0.6434, with a break below this level potentially exposing the yearly low of 0.6348. Support could also be found near the channel’s lower boundary around 0.6310.
On the upside, immediate resistance is at the nine-day Exponential Moving Average (EMA) of 0.6501, followed by the 14-day EMA at 0.6513. A break above these levels could open the door for a move toward the four-week high of 0.6687.
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