31 Jan 2025

• The Australian Dollar may lose ground due to increased risk aversion following renewed Trump tariff threats.
• Trump administration is actively working on tariffs implementation on imports from China.
• Traders await the US Personal Consumption Expenditures (PCE) data later on Friday.
• The Australian Dollar (AUD) is making an effort to end its four-day decline against the US Dollar (USD) on Friday. Nevertheless, the AUD/USD pair has weakened due to a risk-averse sentiment triggered by renewed tariff threats from US President Donald Trump directed at China. Investors are looking for further clarification regarding Trump's tariff strategies.
  
  On Thursday, President Trump reaffirmed his intention to impose 25% tariffs on Canada and Mexico, although he did not provide a specific timeline for actions against China. He did, however, indicate that China would also be subject to tariffs, with his administration actively pursuing their implementation. Given the substantial trade ties between China and Australia, any signs of a resurgence in the US-China trade conflict could exert downward pressure on the AUD.
  
  Additionally, Trump issued a warning on X (formerly Twitter) regarding the imposition of 100% tariffs on BRICS nations if they attempt to establish an alternative currency that could compete with the US dollar in global trade.

• Australian Dollar could decline due to increased hawkish mood surrounding Fed

• The US Dollar Index (DXY), which evaluates the value of the US Dollar against six prominent currencies, is currently trading above 108.00. Attention will be directed towards the upcoming US Personal Consumption Expenditures (PCE), Personal Income/Spending, and the Chicago Purchasing Managers' Index (PMI), which are scheduled for release later on Friday.
  
  The Department of Commerce has reported a decline in the Gross Domestic Product Annualized (Q4) to 2.3%, down from 3.1%, falling short of the anticipated 2.6%. Furthermore, Initial Jobless Claims for the week ending January 24 were recorded at 207K, which is below the expected 220K and represents an improvement from the previous week's figure of 223K.
  
  At its January meeting on Wednesday, the US Federal Reserve decided to maintain its overnight borrowing rate within the range of 4.25%-4.50%, a move that was widely anticipated. This decision comes after three consecutive rate reductions since September 2024, amounting to a total decrease of one percentage point.
• The US Dollar appreciated following the Federal Reserve's adoption of a cautious approach. During the press conference, Fed Chair Jerome Powell highlighted that the central bank would require evidence of "real progress on inflation or some weakness in the labor market" prior to contemplating any further modifications to monetary policy.
  
  Scott Bessent, who served as Treasury Secretary under Trump, expressed his intention to implement new universal tariffs on US imports, beginning at a rate of 2.5%. These tariffs could potentially escalate to as high as 20%, mirroring Trump's assertive trade policy stance, which aligns with his campaign rhetoric from the previous year.
  
  In a conversation with reporters on Air Force One early Tuesday, US President Donald Trump indicated that he desires tariffs "much bigger" than the proposed 2.5% by Treasury Secretary Scott Bessent. Nevertheless, Trump has yet to finalize the specific tariff rates.
  
  The Reserve Bank of Australia published its January 2025 Bulletin, which includes a comprehensive analysis of the effects of monetary policy changes on interest rates within the economy, as well as the subsequent impact of interest rate fluctuations on economic activity and inflation.
• Australia's Consumer Price Index (CPI) experienced a quarter-on-quarter increase of 0.2% in the fourth quarter of 2024, consistent with the growth recorded in the preceding quarter, yet falling short of the anticipated 0.3% by market analysts. Year-over-year, CPI inflation decreased to 2.4% in Q4, down from 2.8% in Q3, which was also below the consensus estimate of 2.5%.
  
  In December 2024, Australia's Monthly CPI rose by 2.5% compared to the previous year, aligning with forecasts and showing an increase from November's 2.3%. This figure represents the highest level since August, while remaining within the Reserve Bank of Australia's (RBA) target range of 2% to 3% for the fourth consecutive month. The RBA's Trimmed Mean CPI recorded a year-over-year increase of 3.2%, the slowest growth in three years, slightly below the expected 3.3%, yet still exceeding the central bank's target range.
  
  Australian Treasurer Jim Chalmers remarked on Wednesday that "the most challenging phase of inflation is now behind us." He further noted that "the soft landing we have been strategizing for is increasingly likely," as reported by Reuters.
  
  The Australian dollar (AUD) encountered difficulties amid heightened risk aversion stemming from tariff threats issued by US President Donald Trump. On Monday evening, President Trump announced intentions to impose tariffs on imports of computer chips, pharmaceuticals, steel, aluminum, and copper, aiming to encourage production relocation to the United States and strengthen domestic manufacturing.

• Technical Analysis: Australian Dollar falls toward 0.6200 within descending channel

• The AUD/USD pair is currently positioned around 0.6210 on Friday, operating within a descending channel pattern on the daily chart, which suggests a bearish sentiment. The 14-day Relative Strength Index (RSI) is situated below the 50 threshold, reinforcing the prevailing downward momentum.
  
  The AUD/USD pair may aim for the lower boundary of the descending channel at the 0.6170 level, followed by a potential decline to 0.6131, which represents the lowest point since April 2020, recorded on January 13.
  
  On the upside, immediate resistance is identified at the nine-day Exponential Moving Average (EMA) at 0.6240, which coincides with the upper boundary of the descending channel.