- The Australian Dollar loses ground due to increased risk aversion as traders focus on Trump’s economic policies, including tariffs.
- The S&P/ASX 200 Index rose to nearly 8,400, reaching its highest level in six weeks.
- President Trump intends to instruct federal agencies to review tariff policies and assess the relationships with Canada, Mexico, and China.
The Australian Dollar (AUD) loses ground on Tuesday after a strong performance in the previous session. The AUD/USD pair remains subdued as US President Donald Trump 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. Since China and Australia are close trading partners, any shifts in China’s economy could have an impact on Australian markets.
The S&P/ASX 200 Index climbed to nearly 8,400 on Tuesday, reaching its highest level in six weeks. This rally came after Donald Trump’s second-term inauguration, as markets reacted positively to his decision not to announce any new tariffs.
Traders increasingly anticipate that the Reserve Bank of Australia (RBA) could begin cutting interest rates as early as next month. This sentiment is driven by softer core inflation data, which has dropped to its lowest level since the fourth quarter of 2021, approaching the RBA’s target range of 2% to 3%. Attention is now turning to Australia’s upcoming quarterly inflation report, scheduled for release next week, as it may provide further insights into the likely path of interest rates.
On Monday, the People’s Bank of China (PBOC) announced that it would keep its Loan Prime Rates (LPRs) unchanged. The one-year Loan Prime Rate (LPR) remains at 3.10%, while the five-year LPR stands at 3.60%.
Australian Dollar could appreciate as Trump refrains from announcing new tariffs
- The US Dollar Index (DXY), which tracks the performance of the US Dollar against six major currencies, rises to around 108.50 at the time of writing. However, the Greenback faced headwinds following a Bloomberg report indicating that President Donald Trump will not immediately announce new tariffs after his inauguration on Monday. Instead, Trump plans to direct federal agencies to review tariff policies and the United States’ trade relationships with Canada, Mexico, and China.
- The US Federal Reserve (Fed) is expected to keep its benchmark overnight rate steady in the 4.25%-4.50% range at its January meeting. However, investors believe Trump’s policies could drive inflationary pressures, potentially limiting the Fed to just one more rate cut. This could help cushion the USD against significant losses in the near term.
- US Retail Sales rose by 0.4% MoM in December, reaching $729.2 billion. This reading was weaker than the market expectations of a 0.6% rise and 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%.
- On Thursday, Chicago Federal Reserve Bank President Austan Goolsbee stated that he has grown increasingly confident over the past several months that the job market is stabilizing at a level resembling full employment, rather than deteriorating into something worse, according to Reuters.
- Scott Bessent, Donald Trump’s nominee for Treasury Secretary, emphasized the importance of maintaining the US Dollar as the world’s reserve currency for the nation’s economic stability and future prosperity. Bessent stated “Productive investment that grows the economy must be prioritized over wasteful spending that drives inflation,” per Bloomberg.
- The Federal Reserve reported in its latest Beige Book survey, released last week, that economic activity saw slight to moderate growth across the twelve Federal Reserve Districts in late November and December. Consumer spending increased moderately, driven by strong holiday sales that surpassed expectations. However, manufacturing activity experienced a slight decline overall, as some manufacturers stockpiled inventories in anticipation of higher tariffs.
Technical Analysis: Australian Dollar falls back below 0.6250 toward nine-day EMA
The AUD/USD pair trades near 0.6230 on Tuesday, attempting to fall back to the descending channel on the daily chart. A successful return would suggest that prevailing bearish bias is still in play. The 14-day Relative Strength Index (RSI) remains below the 50 level, signaling bearish bias is intact.
The AUD/USD pair tests the nine-day Exponential Moving Average (EMA) at 0.6220. A more substantial support level is located near the recent low at 0.6131 level. A break below this level could lead the AUD/USD pair to navigate the region around the lower boundary of the descending channel, around the 0.5890 mark.
On the upside, the AUD/USD pair could approach the psychological level of 0.6300.
AUD/USD: Daily Chart
Australian Dollar PRICE Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.29% | 0.28% | -0.36% | 0.77% | 0.41% | 0.37% | 0.07% | |
| EUR | -0.29% | -0.00% | -0.60% | 0.48% | 0.13% | 0.09% | -0.22% | |
| GBP | -0.28% | 0.00% | -0.63% | 0.48% | 0.13% | 0.09% | -0.21% | |
| JPY | 0.36% | 0.60% | 0.63% | 1.11% | 0.75% | 0.70% | 0.41% | |
| CAD | -0.77% | -0.48% | -0.48% | -1.11% | -0.35% | -0.39% | -0.69% | |
| AUD | -0.41% | -0.13% | -0.13% | -0.75% | 0.35% | -0.05% | -0.33% | |
| NZD | -0.37% | -0.09% | -0.09% | -0.70% | 0.39% | 0.05% | -0.30% | |
| CHF | -0.07% | 0.22% | 0.21% | -0.41% | 0.69% | 0.33% | 0.30% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
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