The AUD/USD pair kicked off the new week and month on a weaker note, falling back below the key 0.6500 level during the Asian session, ending a three-day winning streak. The broader fundamental environment supports the likelihood of a continuation of the recent downtrend, which has persisted for the past two months.
Concerns about a potential second wave of the US-China trade war under President-elect Donald Trump’s leadership are driving safe-haven flows into the US Dollar (USD) and pressuring the Australian Dollar (AUD), which is often seen as a proxy for Chinese economic health. Trump’s plans to impose significant tariffs on major US trading partners, including Mexico, Canada, and China, along with his threat of a 100% tariff on BRICS nations (Brazil, Russia, India, China, and South Africa) if they replace the USD with another currency, have intensified market anxiety.
Additionally, there is growing conviction that Trump’s trade policies could push inflation higher, reducing the likelihood of further monetary easing by the Federal Reserve (Fed). This has led to a rise in US Treasury bond yields, supporting the USD and helping it recover from a nearly three-week low seen last Friday. These factors overshadow the hawkish stance of the Reserve Bank of Australia (RBA), offering little support to the AUD.
Economic data from China over the weekend showed mixed signals: the official Manufacturing Purchasing Managers’ Index (PMI) edged up to 50.3 in November from 50.2, while the Non-Manufacturing PMI fell to 50.0. However, the Caixin Manufacturing PMI improved significantly to 51.5, fueling hopes for additional government stimulus to support domestic demand. Despite these positive data points, they failed to provide relief for the AUD/USD pair.
Given the prevailing economic backdrop, the path of least resistance for the pair appears to be to the downside, although traders are likely to hold off on making aggressive bets ahead of key US economic data this week. The release of the ISM Manufacturing PMI is expected to influence the USD, while the highly anticipated US Nonfarm Payrolls (NFP) report on Friday will remain the focal point for traders seeking short-term opportunities.
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