23 Jan 2025

• The Australian Dollar loses ground despite new economic measures by the Chinese authorities. 
• Chinese authorities permit 100 billion Yuan of pension funds to boost investments in domestic equities to stabilize the stock markets.
• The S&P/ASX 200 Index declined, driven by a drop in mining stocks as weaker commodity prices put pressure on the sector
• The Australian Dollar (AUD) faced challenges against the US Dollar (USD) on Thursday. Nevertheless, market apprehensions diminished following reports that the tariffs targeting China proposed by US President Donald Trump in his revised plan are considerably lower than previously anticipated. This news contributed to alleviating investor anxiety, particularly in light of the robust trade connections between China and Australia, which render Australian markets particularly responsive to fluctuations in China's economic conditions.
  
  President Trump revealed intentions to impose a 10% tariff on Chinese imports beginning February 1, citing issues related to fentanyl shipments from China to Mexico and Canada, as reported by Reuters. In reaction, Chinese Vice Premier Ding Xuexiang cautioned on Tuesday about the potential repercussions of a trade war, asserting that "there are no winners" in such disputes. His comments come as China prepares for the possibility of tariffs under the Trump administration, according to CNBC.
• Chinese authorities announced a series of measures on Thursday aimed at stabilizing the stock markets, which include permitting pension funds to enhance their investments in domestic equities. A pilot program that will allow insurance companies to invest in equities is set to commence in the first half of 2025, with an initial investment target of no less than 100 billion Yuan. Additionally, the People’s Bank of China (PBoC) indicated that it will "broaden the range and increase the volume of liquidity tools to support share purchases at an appropriate time."
  
  On the same day, the S&P/ASX 200 Index dropped below 8,400, primarily due to a downturn in mining stocks, as declining commodity prices negatively impacted the sector. This decrease in the Australian equity market occurred despite significant gains on Wall Street. Investors are exercising caution as they evaluate the potential effects of President Trump’s policy adjustments.

• Australian Dollar could appreciate as market concerns ease regarding Trump tariffs

  The US Dollar Index (DXY), which measures the value of the US Dollar against six prominent currencies, remains above the 108.00 mark at the time of this report. The Dollar has found support following President Donald Trump's issuance of a memorandum directing federal agencies to investigate and tackle the persistent trade deficits.
  
  Market participants are expected to closely observe the upcoming release of the preliminary US S&P Global Purchasing Managers Index (PMI) and the Michigan Consumer Sentiment Index for January on Friday. These metrics are anticipated to offer significant insights into short-term economic developments.
  
  There is potential for the US Dollar to strengthen as traders predict that the US Federal Reserve (Fed) will maintain its benchmark overnight interest rate within the 4.25%-4.50% range during its January meeting. Additionally, Trump's policies may contribute to inflationary pressures, which could restrict the Fed to a single further rate cut.
  
  In December, US Retail Sales increased by 0.4% month-over-month, totaling $729.2 billion. This figure fell short of market expectations, which anticipated a 0.6% rise, and was also lower than the previous reading of a 0.8% increase (revised from 0.7%).

  • The US Consumer Price Index increased by 2.9% year-over-year in December, up from 2.7% in November, aligning with market expectations. Monthly, CPI rose 0.4%, following a 0.3% increase in the previous month. US Core CPI, which excludes volatile food and energy prices, rose 3.2% annually in December, slightly below November's figure and analysts' forecasts of 3.3%.
  • Traders are increasingly expecting the Reserve Bank of Australia (RBA) to start cutting interest rates as soon as next month. This outlook is fueled by weaker core inflation data, which has fallen to its lowest level since Q4 2021, nearing the RBA's target range of 2% to 3%. All eyes are now on Australia's upcoming quarterly inflation report, set for release next week, as it could offer additional clues about the future direction of interest rates.

  • Technical Analysis: Australian Dollar remains below 0.6300 and ascending channel’s upper boundary

    The AUD/USD pair is currently trading close to 0.6270 on Thursday. An analysis of the daily chart reveals that the pair is moving within an ascending channel pattern, which indicates a potential bullish outlook. Furthermore, the 14-day Relative Strength Index (RSI) is positioned slightly above 50, which supports a positive market sentiment.
    
    On the upside, the AUD/USD pair may approach the psychological resistance level of 0.6300, with the subsequent target located near the upper boundary of the ascending channel at approximately 0.6320.
    
    Initial support is identified at the nine-day Exponential Moving Average (EMA) at 0.6244, followed by the 14-day EMA at 0.6238. More substantial support is anticipated at the lower boundary of the ascending channel around 0.6220, with additional support at the psychological level of 0.6200.