Australian currency weakens as markets digest potential US-China trade war escalation
Four major Australian banks now predict RBA rate cut in February meeting
Key US inflation data could xrp news trumpdetermine near-term AUD/USD trajectory
The Australian Dollar (AUD) continues its downward trajectory against the US Dollar (USD), marking five consecutive days of decline. This sustained weakness comes as currency traders evaluate the potential impact of renewed trade tensions between the United States and China. Market participants remain cautious while awaiting concrete details about proposed tariff measures from the Trump administration.
Financial institutions across Australia have revised their monetary policy expectations, with National Australia Bank (NAB) joining ANZ, CBA, and Westpac in forecasting a 25 basis point reduction in the cash rate at the February Reserve Bank of Australia (RBA) meeting. This represents a significant shift from NAB's previous projection of maintaining rates until May.
Declining price pressures observed in late 2024 have strengthened the case for monetary policy easing. The RBA has maintained its benchmark rate at 4.35% since November 2023, consistently emphasizing the need for inflation to demonstrate sustainable movement toward the 2%-3% target range before considering any policy adjustments.
Federal Reserve's policy stance adds pressure on Aussie Dollar
The US Dollar Index (DXY) maintains strength above the 108.00 level, with traders focusing on upcoming economic indicators including Personal Consumption Expenditures (PCE) data and manufacturing figures.
As anticipated, the Federal Reserve maintained its target rate range of 4.25%-4.50% during its January policy meeting. This follows three consecutive rate reductions implemented since September 2024, cumulatively totaling 100 basis points of easing.
Market sentiment shifted following the Fed's communication, which struck a more cautious tone than some participants expected. Chair Jerome Powell stressed the need for clear evidence of either sustained inflation moderation or labor market softening before contemplating additional policy changes.
Recent statements from Trump administration officials suggest potential implementation of broad-based import tariffs, with initial rates potentially starting at 2.5% but possibly escalating significantly higher. These proposals align with campaign promises made during the recent election cycle.
The President himself has indicated a preference for more substantial tariff measures than those initially proposed by Treasury officials, though specific details remain undetermined at this stage.
The RBA's latest bulletin provides comprehensive examination of monetary policy transmission mechanisms, detailing how rate adjustments influence broader economic conditions and price stability.
Australian inflation data for Q4 2024 showed modest quarterly growth of 0.2%, matching Q3's pace but falling slightly below market expectations. Annual inflation moderated to 2.4%, below both the previous quarter's reading and consensus forecasts.
December's monthly CPI figures indicated a 2.5% year-over-year increase, marking the highest reading in several months while remaining comfortably within the RBA's target band. The trimmed mean measure, however, continues to exceed the upper bound of the target range.
Government officials have expressed confidence in the inflation outlook, with the Treasurer suggesting that the most challenging phase of price pressures has passed and that economic conditions appear conducive to achieving a soft landing.
Risk sentiment has deteriorated following announcements regarding potential tariffs targeting specific industries, including technology components, medical products, and industrial metals. These measures aim to stimulate domestic production capacity.
Technical perspective: AUD/USD maintains bearish channel structure
The AUD/USD pair currently trades near 0.6210, maintaining its position within a clearly defined downward channel visible on daily charts. Momentum indicators continue to reflect bearish dominance, with the RSI holding below the neutral 50 level.
Technical analysts identify potential support around the 0.6170 area, corresponding with the channel's lower boundary. A breach of this level could expose the multi-year low recorded in mid-January near 0.6131.
Any recovery attempts would likely encounter initial resistance near 0.6240, where the nine-day EMA converges with the descending channel's upper trendline. Sustained movement above this zone would be required to signal potential trend reversal.
AUD/USD technical outlook
The Australian Dollar's performance against major counterparts shows mixed results in recent trading sessions. While demonstrating relative weakness against the Japanese Yen, the currency has managed modest gains versus several European currencies.
Market participants continue to monitor developments in trade policy and central bank communications for clues about future currency movements. The combination of domestic monetary easing expectations and external trade uncertainties creates a challenging environment for the Australian Dollar.