The Australian Dollar (AUD) experiences weakness against the US Dollar (USD) as US President Trump considers a 10% tariff on Chinese imports. Despite this, the S&P/ASX 200 Index rallies to a seven-week high, driven by positive lead from Wall Street. Economic indicators in both the US and Australia offer mixed signals, with the RBA expected to cut interest rates soon.
The Australian Dollar (AUD) is experiencing subdued performance against the US Dollar (USD) on Wednesday. This weakness stems from US President Donald Trump's announcement that his administration is contemplating a 10% tariff on Chinese imports, a move slated to take effect from February 1. The proposed tariff is reportedly linked to concerns regarding fentanyl shipments from China to Mexico and Canada.
This comes on the heels of Trump's executive order delaying the enforcement of the TikTok ban by 75 days, and his earlier statement that tariffs on China could be imposed if the TikTok deal isn't approved. Given the strong trading relationship between China and Australia, any developments that impact China's economy can significantly influence Australian markets.Chinese Vice Premier Ding Xuexiang issued a warning on Tuesday about the potential repercussions of a trade war, emphasizing that such conflicts have no victors. His statement comes as China faces the possibility of tariffs under President Trump's administration. Despite these concerns, the S&P/ASX 200 Index climbed to approximately 8,450 on Wednesday, reaching its highest level in nearly seven weeks. This positive movement was fueled by a positive lead from Wall Street, attributed to President Trump's decision to delay the implementation of tariff threats, which provided relief to global markets.The US Dollar Index (DXY), which measures the performance of the US Dollar against six major currencies, remained stable around 108.00 at the time of writing. Although the Greenback faced headwinds due to President Trump's decision not to impose new tariffs on his first day in office, he did issue a memorandum instructing federal agencies to investigate and address ongoing trade deficits. Trump also issued warnings to Mexico, Canada, China, and the European Union about potential tariffs related to various trade concerns. The US Federal Reserve (Fed) is anticipated to maintain its benchmark overnight rate within the 4.25%-4.50% range at its January meeting. However, investors believe Trump's policies could contribute to inflationary pressures, potentially limiting the Fed to just one more rate cut. This could help mitigate significant losses for the USD in the near term.Meanwhile, US Retail Sales increased by 0.4% month-over-month in December, reaching $729.2 billion. This figure fell short of market expectations of a 0.6% rise and the previous reading of an 0.8% increase (revised from 0.7%). The US Consumer Price Index (CPI) climbed by 2.9% year-over-year in December, up from 2.7% in November, aligning with market projections. Month-on-month, CPI rose by 0.4%, following a 0.3% increase in the prior month. US Core CPI, excluding volatile food and energy prices, rose 3.2% annually in December, slightly below November's figure and analyst forecasts of 3.3%.Australia's Westpac Leading Index remained steady in December 2024, showing no change from the previous month, which recorded a 0.1% increase. Conversely, the six-month annualized growth rate, a measure of the anticipated pace of economic activity compared to the trend over the next three to nine months, dipped to 0.25% in December, down from 0.33% in November. Despite this dip, it remained positive for the second consecutive month. Traders are increasingly anticipating the Reserve Bank of Australia (RBA) to commence cutting interest rates as early as next month. This outlook is fueled by weaker core inflation data, which has fallen to its lowest level since the fourth quarter of 2021, nearing the RBA's target range of 2% to 3%. All eyes are now on Australia's upcoming quarterly inflation report, scheduled for release next week, as it could provide further insights into the future direction of interest rates.As for the AUD/USD pair, it trades near 0.6270 on Wednesday. A daily chart analysis suggests that the pair is moving within an ascending channel pattern, indicating a potential bullish bias. Furthermore, the 14-day Relative Strength Index (RSI) is slightly above the 50 mark, reinforcing the presence of bullish sentiment in the market. On the upside, the AUD/USD pair could test the psychological resistance level at 0.6300, with the next target being the upper boundary of the ascending channel near 0.6320. Initial support is seen around the nine-day Exponential Moving Average (EMA) at 0.6235, followed by the 14-day EMA at 0.6231. A stronger support level lies at the ascending channel's lower boundary around 0.6210, with additional support at the psychological level of 0.6200.
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