The Australian Dollar (AUD) continues to struggle, experiencing a decline against the US Dollar (USD) for the fifth consecutive day. This downward trend is largely attributed to the looming tariff policies proposed by US President Donald Trump, which have created uncertainty within the market. Traders are particularly focused on forthcoming data related to US Personal Consumption Expenditures (PCE), set to be released later today.
Market sentiment has shifted as institutions such as ANZ, CBA, Westpac, and National Australia Bank (NAB) now predict a 25 basis point cut from the Reserve Bank of Australia (RBA) in February. Initially, NAB had anticipated the cut would occur in May, but it has since revised its forecast to align with the prospective policy changes occurring next month. Easing inflationary pressures have prompted speculation that the RBA could enact this adjustment.
The RBA has maintained the Official Cash Rate (OCR) at 4.35% since November 2023, underlining that any easing of monetary policy will rely on inflation rates sustainably returning to the target range of 2% to 3%. The recent inflation data revealed only a 0.2% quarter-on-quarter increase in Consumer Price Index (CPI) in Q4 2024, below market expectations, while annual CPI inflation eased to 2.4%.
The US Dollar Index (DXY) is trading above 108.00 as the market prepares for key economic indicators. With the Federal Reserve keeping the overnight borrowing rate steady in the 4.25%-4.50% range during its latest meeting, market participants are closely watching for hints regarding future monetary policy directions. Fed officials have indicated that any forthcoming adjustments will depend on observed improvements in inflation and labor market conditions.
The turbulent situation is further complicated by Trump’s announcement of potential tariffs on a variety of imports aiming to boost domestic manufacturing. The ongoing risk aversion surrounding these proposals adds pressure to the Australian Dollar, which is under additional scrutiny as it hovers around the 0.6210 level against the US Dollar. The currency’s movement remains constrained by the ongoing bearish sentiment, suggesting possible support at lower levels such as 0.6170. The immediate resistance on the upside is noted around 0.6240.
