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28/02/25
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AUD Declines Amid Geopolitical Tensions and Economic Concerns
The Australian Dollar (AUD) has continued to decline, marking a sixth consecutive day of weakness as geopolitical tensions and economic data weigh on the currency’s performance. The recent announcement from the US regarding new tariffs on Chinese goods has further impacted the AUD, with President Trump reiterating plans for a 25% tariff on imports from Mexico and Canada while also increasing duties on Chinese products. This updated strategy comes as the US grapples with drug-related issues stemming from these regions.
In addition to tariff-related pressures, the AUD has been challenged by domestic economic data. Recent figures revealed an unexpected contraction of 0.2% in Australian Private Capital Expenditure for the last quarter of 2024, diverging from market expectations of a modest growth rate of 0.8%. This follows a revised growth of 1.6% in the previous quarter, indicating a potential slowdown in investment.
The US Dollar Index saw gains after the release of data showing the US GDP Annualized growth rate at 2.3% for Q4 2024, aligning with forecasts. This strengthened the dollar against major currencies, contributing to the AUD’s decline. Officials within the Federal Reserve have indicated a preference for maintaining current interest rates, reinforcing a cautious economic outlook.
Concerns over trade relationships persist, particularly as the ongoing tariffs pose threats to Australia’s economic ties with China, its largest trading partner. Any potential responses from China could significantly influence the AUD’s performance moving forward.
Recent moves by the Reserve Bank of Australia, including a rate cut to 4.10%, reflect an era of changing monetary policy, with officials emphasizing the importance of addressing inflation while navigating a robust labor market. The AUD/USD pairing is currently hovering around 0.6220, facing immediate support at 0.6200. Analysts have indicated that a pull below this psychological threshold could lead the pair towards levels last seen in early 2020. Conversely, resistance levels lie at 0.6297 and 0.6302, with the potential for the currency to challenge recent highs if these barriers are surpassed.
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