22 Jan 2025

• The Australian Dollar faces pressure after President Trump announced that his administration is considering a 10% tariff on Chinese imports.
• Chinese Vice Premier Ding Xuexiang warned about the consequences of a trade war.
• Trump issued a memorandum directing federal agencies to investigate and address the ongoing trade deficits.
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• The Australian Dollar (AUD) continues to exhibit weakness against the US Dollar (USD) on Wednesday. The AUD/USD pair encounters difficulties as US President Donald Trump revealed that his administration is contemplating the implementation of a 10% tariff on Chinese imports, effective February 1. This decision is reportedly associated with apprehensions regarding fentanyl shipments from China to Mexico and Canada, as reported by Reuters.
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• Trump previously stated, "If we make a TikTok deal and China doesn’t approve it, we could maybe put tariffs on China." This remark follows his signing of an executive order that postpones the enforcement of the TikTok ban by 75 days. Given the strong trading ties between China and Australia, any changes impacting China's economy could have a considerable effect on Australian markets.
• Chinese Vice Premier Ding Xuexiang cautioned on Tuesday regarding the consequences of a trade war, highlighting that "there are no winners" in such disputes, as China confronts the potential imposition of tariffs under the newly elected administration of Donald Trump, as reported by CNBC.
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• On Wednesday, the S&P/ASX 200 Index rose to approximately 8,450, reaching its highest point in almost seven weeks. This increase was bolstered by a favorable performance from Wall Street, attributed to US President Donald Trump’s choice to postpone the enforcement of tariff threats, which alleviated concerns in global markets.

• Australian Dollar could gain ground as Trump opts not to impose new tariffs

  The US Dollar Index (DXY), which measures the value of the US Dollar relative to six prominent currencies, is currently stable around the 108.00 mark. Nevertheless, the Dollar encountered challenges as President Donald Trump refrained from implementing new tariffs on his inaugural day in office. He did, however, issue a memorandum directing federal agencies to examine and tackle existing trade deficits. Additionally, Trump cautioned Mexico, Canada, China, and the European Union regarding possible tariffs related to various trade issues.

  
  

  The US Federal Reserve (Fed) is anticipated to maintain its benchmark overnight interest rate within the range of 4.25%-4.50% during its January meeting. Nonetheless, investors are concerned that Trump’s policies may induce inflationary pressures, which could restrict the Fed to a single additional rate cut. This scenario may provide some support for the USD against substantial declines in the short term.

  
  

  In December, US Retail Sales experienced a month-over-month increase of 0.4%, totaling $729.2 billion. This figure fell short of market expectations, which had anticipated a 0.6% rise, and was also lower than the previous month's revised increase of 0.8% (originally reported as 0.7%).

  The US Consumer Price Index (CPI) experienced a year-over-year increase of 2.9% in December, rising from 2.7% in November, which was in line with market predictions. On a monthly basis, the CPI advanced by 0.4%, following a 0.3% rise in the preceding month. The Core CPI in the US, which excludes the more volatile categories of food and energy, increased by 3.2% annually in December, slightly lower than the November figure and below analysts' expectations of 3.3%.

  
  

  In Australia, the Westpac Leading Index remained unchanged in December 2024, maintaining the previous month's 0.1% increase. Conversely, the six-month annualized growth rate, which indicates the anticipated pace of economic activity over the next three to nine months, decreased to 0.25% in December from 0.33% in November, although it continued to show positive growth for the second month in a row.

  
  

  Market participants are increasingly anticipating that the Reserve Bank of Australia (RBA) may initiate interest rate cuts as early as next month. This sentiment is driven by declining core inflation data, which has reached its lowest point since the fourth quarter of 2021, approaching the RBA's target range of 2% to 3%. Attention is now focused on the forthcoming quarterly inflation report from Australia, scheduled for release next week, as it may provide further insights into the potential trajectory of interest rates.

  Australian Dollar stays below 0.6300 but is poised to test upper  ascending channel’s boundary

  AUD/USD is currently trading close to 0.6270 on Wednesday. An analysis of the daily chart indicates that the pair is operating within an ascending channel pattern, which suggests the possibility of a bullish trend developing. Additionally, the 14-day Relative Strength Index (RSI) is positioned just above the 50 threshold, further supporting the notion of bullish market sentiment.

  
  

  On the upside, the AUD/USD pair may approach the psychological resistance level at 0.6300, with the subsequent target being the upper limit of the ascending channel, approximately at 0.6320.

  
  

  Initial support is identified around the nine-day Exponential Moving Average (EMA) at 0.6235, followed closely by the 14-day EMA at 0.6231. A more substantial support level is located at the lower boundary of the ascending channel, around 0.6210, with additional support available at the psychological level of 0.6200.