The Australian Dollar (AUD) is encountering significant headwinds, primarily due to the challenges posed by tariff threats from the U.S. administration. The recent discussions surrounding a potential 10% tariff on Chinese imports have heightened concerns. Such tariffs would likely adversely impact the AUD, given China’s status as Australia’s largest trading partner. As a result, the AUD has been losing ground against the U.S. Dollar (USD).
Following the release of mixed employment data, there was a momentary boost for the AUD. The data indicated an increase of 35,600 jobs in November, bringing the total number employed to approximately 14.5 million, while the unemployment rate dropped to 3.9%, significantly lower than anticipated. However, this slight positive development was overshadowed by broader economic sentiments driven by fears of escalating trade tensions.
The USD gained strength after a stronger-than-expected Producer Price Index (PPI) report for November, which showed a month-over-month increase of 0.4%. This marked the largest gain since June and surpassed earlier market predictions. Market participants are now closely watching the Federal Reserve’s upcoming interest rate decision, with expectations of a 25 basis point rate cut on December 18, which has further bolstered the dollar.
Geopolitical tensions have also intensified, as China has begun retaliatory measures against U.S. trade policies. This includes investigations into U.S. companies and restrictions on exports of critical materials. In the midst of these developments, China’s Trade Balance showed a small increase, with exports growing at a slower rate compared to the previous month.
Amidst these challenges, the Reserve Bank of Australia (RBA) has maintained its Official Cash Rate at 4.35%. The RBA is monitoring inflation risks carefully while considering future policy adjustments based on employment and economic indicators. With Australia’s economy growing at its slowest pace since the pandemic, market expectations for a potential rate cut are rising.
From a technical perspective, the AUD/USD pair remains above 0.6350, with the daily analysis indicating a bearish trend within a descending channel. Market observers will be watching key support and resistance levels closely, particularly the yearly low of 0.6348 and potential upward resistance around 0.6404. If the pair breaks below support, it might lead to further downward pressure, while a significant breakout upward could target higher levels.
