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11/11/24
23
AUD Faces Headwinds Amid Chinese Tariff Concerns and Economic Instabilities
The Australian Dollar (AUD) is facing challenges due to concerns surrounding proposed tariff increases on Chinese imports, a move that could negatively affect Australia’s economy, particularly as China is a key trading partner. With US markets observing a holiday, the AUD demonstrated slight gains, albeit under a generally negative sentiment fueled by economic uncertainties.
Recent data revealed that China’s Consumer Price Index (CPI) fell short of expectations, alongside disappointing stimulus measures that raised concerns about future demand for Australian exports. China’s announcement of a substantial 10 trillion Yuan debt package aimed at easing local government financing did not include direct stimulus initiatives, causing further unease among investors regarding economic growth.
In the backdrop, Australia’s government bond yields declined, reflecting a decrease in US bond yields after the Federal Reserve’s anticipated interest rate cut. The Reserve Bank of Australia (RBA) has maintained its interest rate at 4.35%, expressing concerns that underlying inflation is significantly above target levels, with a return to the target not expected until 2026.
Recent commentary from Federal Reserve officials highlighted a resilient US economy, but emphasized that sustained confidence in inflation returning to the 2% target is essential before considering additional rate adjustments. The implication of higher fiscal spending and tariffs from the upcoming administration could pose inflationary pressures, potentially influencing the Fed’s future monetary policy stance, which might bolster the US Dollar and exert downward pressure on the AUD/USD exchange rate.
Current trading shows the AUD/USD pair hovering around 0.6590, with technical indicators suggesting the potential for continued bearish sentiment. The pair remains under its nine-day Exponential Moving Average, and a breach of recent support levels could lead to further declines towards 0.6512, while resistance levels indicate initial challenges at 0.6604 and 0.6616. Rising above these levels may prompt a reassessment of recent highs near 0.6687.
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