The Australian Dollar is under pressure following comments from President Trump regarding potential tariffs on Chinese imports. The proposed 10% tariff, set to be considered starting February 1, raises concerns tied to fentanyl shipments from China. This announcement has drawn attention, especially with Trump hinting that tariffs could be leveraged depending on future dealings with China, particularly in relation to a TikTok deal. Given Australia’s significant trade connections with China, any shifts in China’s economic policies could have serious repercussions for Australia’s markets.
Chinese Vice Premier Ding Xuexiang recently cautioned about the fallout of a trade war, highlighting that such conflicts do not yield beneficial outcomes for either side. Despite this, the S&P/ASX 200 Index saw an uptick, reaching approximately 8,450, its highest level in nearly seven weeks. This increase followed a positive response on Wall Street to Trump’s decision to postpone tariff impositions, providing a momentary sense of relief in global markets.
The Australian Dollar may strengthen if the U.S. administration refrains from imposing new tariffs. The U.S. Dollar Index has been stable, hovering around 108.00, even as the Greenback faced challenges. Trump’s decision to not introduce new tariffs on his first day in office has set a complex stage for discussions around ongoing trade imbalances, as he prepared federal agencies to investigate these issues.
In the broader economic landscape, the U.S. Federal Reserve is expected to maintain its benchmark overnight rate in the 4.25% – 4.50% range during its upcoming meeting. This comes as the market anticipates that Trump’s policies could spur inflationary pressures, limiting the Fed to one potential rate cut in the near future. Meanwhile, U.S. retail sales recorded a modest increase, falling short of market expectations, and inflation metrics show a slight uptick, aligning with forecasts.
Locally, Australia’s economic indicators remain of interest. The Westpac Leading Index remained unchanged, while the six-month growth rate dropped slightly but remained positive. Traders are starting to factor in potential interest rate cuts from the Reserve Bank of Australia, influenced by lower core inflation rates nearing the RBA’s target range. As the upcoming quarterly inflation report approaches, it is expected to provide clarity on future interest rate movements.
Currently, the Australian Dollar is trading just below the 0.6300 level, resting around 0.6270. An analysis reveals the currency is operating within an ascending channel pattern, which suggests the possibility of an upward movement. The AUD/USD pair may test the key psychological level at 0.6300, with subsequent targets around 0.6320. On the downside, initial support is seen at the nine-day Exponential Moving Average around 0.6235, followed by further supports at 0.6231 and 0.6210.
