The Australian Dollar (AUD) is trading lower against the US Dollar (USD), positioned at approximately 0.6215 during the early Asian session on Friday. The strength of the USD continues to be bolstered by reduced expectations for additional rate cuts from the Federal Reserve and the anticipated economic policies of the incoming Trump administration, which are expected to fuel growth and inflation in the US. Market activity is expected to be subdued as traders prepare for the upcoming New Year holiday.
Recently, the Federal Reserve announced a 25 basis point reduction in interest rates, a move that was widely anticipated. The Fed’s Chair has indicated that further rate cuts will depend heavily on progress toward mitigating persistently high inflation rates. In addition, analysts have noted that new tariff policies under a Trump administration could exacerbate price pressures, thereby influencing the Fed’s decision-making and strengthening the USD against the AUD.
In labor market news, data released by the U.S. Department of Labor revealed a decrease in initial jobless claims, which fell to 219,000 for the week ending December 21. The figure was a slight decrease from the previous week’s 220,000, but it also fell below the anticipated consensus of 224,000, suggesting a resilient labor market.
On the Australian side, the latest minutes from the Reserve Bank of Australia’s meeting indicate a growing confidence that inflation is progressing towards targets. However, officials remain cautious, noting that it’s still too early to declare victory in the fight against inflation, particularly in light of recent increases in household spending and a robust labor market. Analysts project that any rate cuts by the RBA may not commence until the second quarter of 2025, indicating a gradual easing process.
