The Australian Dollar (AUD) faced sustained pressure against the US Dollar (USD) on Friday, trading near 0.6360, as broad-based USD strength driven by tariff threats from the Trump administration weighed on the AUD/USD pair. Speculation over a potential 10% tariff on Chinese goods has added to the AUD’s woes, given China’s role as Australia’s largest trading partner.
Mixed Domestic Data Offers Limited Support
Australia’s employment report on Thursday provided some relief. The seasonally adjusted Employment Change showed an increase of 35,600 jobs in November, while the Unemployment Rate dropped to a 3.9% low, outperforming expectations of 4.2%. However, the overall impact of this positive data was muted as other factors dominated market sentiment.
The Reserve Bank of Australia (RBA) maintained its Official Cash Rate (OCR) at 4.35% during its December meeting, signaling caution amid slowing growth. Australia’s GDP grew just 0.3% in Q3, the slowest pace since the pandemic, missing market forecasts of 0.4%. This weaker-than-expected performance has led markets to almost fully price in a rate cut by April 2024, according to Refinitiv data.
US Dollar Bolstered by Economic Data
The US Dollar continued its ascent, supported by a hotter-than-expected Producer Price Index (PPI) report for November, which rose 0.4% MoM, marking the largest gain since June. Additionally, the Consumer Price Index (CPI) showed steady inflationary pressures, with a 2.7% YoY increase in headline CPI and a 3.3% YoY rise in core CPI.
Traders are closely watching the US Federal Reserve’s interest rate decision next week, with a 25 basis-point cut fully priced in, according to CME’s FedWatch Tool.
External Pressures on the AUD
Rising trade tensions between the US and China further pressured the Australian Dollar. China, in retaliation to potential US tariffs, has initiated actions such as probing Nvidia and restricting critical mineral exports to the US. At the same time, China’s slower export growth and policymakers’ considerations for a weaker Yuan have raised additional concerns.
Chinese President Xi Jinping reiterated confidence in meeting economic targets and emphasized China’s role as a global growth engine. However, Xi warned against the damaging effects of tariff and trade wars, aligning with the broader uncertainty affecting Australia’s trade-dependent economy.
Technical Outlook: Bearish Momentum Prevails
The AUD/USD pair remains locked in a descending channel pattern, reflecting a bearish bias. Immediate support is seen at the yearly low of 0.6348, and a breach below this level could push the pair toward the channel’s lower boundary near 0.6190.
On the upside, resistance lies at the nine-day Exponential Moving Average (EMA) at 0.6404, followed by the 14-day EMA at 0.6427. A breakout above these levels could lead to a recovery toward the seven-week high of 0.6687.
In the near term, the AUD faces a challenging environment, shaped by external geopolitical tensions, domestic economic concerns, and the ongoing strength of the US Dollar.
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