26/11/24

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The Australian Dollar (AUD) continues to face headwinds against the US Dollar (USD) following a decline in market sentiment triggered by Donald Trump’s announcement to raise tariffs. The proposed increase includes a 10% tariff on all Chinese imports and a 25% tariff on goods from Mexico and Canada, casting uncertainty over international trade relations.

Despite this bearish trend, the AUD may find some support due to the Reserve Bank of Australia’s (RBA) stringent outlook regarding future interest rates. Market participants are keenly awaiting the release of Australia’s Monthly Consumer Price Index (CPI) for October on Wednesday, as this indicator has the potential to shape monetary policy expectations in the country.

The RBA’s recent meeting minutes revealed concerns about ongoing inflationary pressures, emphasizing the need to sustain a cautious monetary policy approach. Although the RBA acknowledged that there is no urgent necessity to change the cash rate, it reiterated that future adjustments depend on economic data, demonstrating a flexible framework for policy-making.

Meanwhile, the US Dollar Index is relatively stable around 107.30, supported by positive trends in the bond market. The appointment of Scott Bessent as US Treasury secretary has also contributed to this stability, as he is viewed as a seasoned financier with conservative fiscal views. Solid preliminary data from the S&P Global US Purchasing Managers’ Index (PMI) have influenced traders’ expectations regarding the Federal Reserve’s future moves, with a decreased likelihood of aggressive rate cuts.

In contrast, the Australian economic landscape is demonstrating signs of contraction. The Judo Bank Australia PMI Composite Index fell below the neutral mark, indicating a decrease in private sector output. Manufacturing continues to struggle, experiencing its tenth consecutive month of contraction, while services activity also registered a decline for the first time in nearly a year.

Current trading for the AUD/USD pair hovers near 0.6470, suggesting continued bearish momentum. Should the pair test its yearly low of 0.6348 and find additional support near the channel’s lower boundary, a decisive break through key resistance levels might signal an opportunity for a rally. However, the prevailing market sentiment continues to weigh heavily on the Australian Dollar.