The Australian Dollar (AUD) saw a retreat on Tuesday, following a strong performance in the previous session, as the AUD/USD pair remained subdued. This comes after US President Donald Trump’s remarks that escalated concerns over potential trade tensions with China. Trump stated that if the US were to reach a deal on TikTok and China doesn’t approve it, tariffs on China could be imposed. This statement follows his executive order delaying the enforcement of a TikTok ban by 75 days. Given that China and Australia are major trading partners, any shifts in China’s economy could have ripple effects on the Australian markets.
Meanwhile, the S&P/ASX 200 Index saw an increase, reaching nearly 8,400—its highest level in six weeks—following Trump’s second-term inauguration. Markets reacted positively to the lack of immediate tariff announcements, which helped drive the rally.
Investors are increasingly anticipating that the Reserve Bank of Australia (RBA) could begin cutting interest rates as early as next month. This sentiment is fueled by the latest core inflation data, which dropped to its lowest level since Q4 2021, nearing the RBA’s target range of 2% to 3%. The focus is now on Australia’s upcoming quarterly inflation report, due next week, which could provide further insights into the RBA’s potential policy actions.
In China, the People’s Bank of China (PBOC) recently announced it would keep its Loan Prime Rates (LPRs) unchanged, with the one-year LPR remaining at 3.10% and the five-year LPR at 3.60%.
On the broader market front, the US Dollar Index (DXY) rose to around 108.50. However, the USD faced some headwinds following a Bloomberg report stating that Trump would not immediately impose new tariffs post-inauguration. Instead, Trump is set to direct federal agencies to review tariff policies and trade relationships with Canada, Mexico, and China.
Meanwhile, the US Federal Reserve is expected to maintain its overnight rate in the 4.25%-4.50% range during its January meeting. However, speculation about potential inflationary pressures due to Trump’s policies could limit the Fed to just one more rate cut, potentially supporting the USD against significant losses in the near term.
On the economic data front, US Retail Sales rose 0.4% MoM in December, missing expectations of a 0.6% increase. Additionally, the US Consumer Price Index (CPI) rose 2.9% YoY in December, in line with expectations, while Core CPI came in slightly below forecasts at 3.2%.
From a technical perspective, the AUD/USD pair is testing the nine-day Exponential Moving Average (EMA) at 0.6220. The 14-day Relative Strength Index (RSI) remains below the 50 level, signaling continued bearish sentiment. A move below the recent low of 0.6131 could push the pair toward the lower boundary of the descending channel near 0.5890.
On the upside, the next resistance level for AUD/USD is at the psychological 0.6300 mark.
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