Australian dollar continues to lose ground following Donald Trump’s announcement of higher tariffs, market sentiment deteriorates.
President-elect Donald Trump’s announcement of a 10% increase in tariffs on all Chinese goods entering the US and a 25% tariff on imports from Mexico and Canada has dampened market sentiment, which has caused the Australian dollar (AUD) to continue losing ground against the US dollar (USD) on Tuesday.
The focus will be on Australia’s October Monthly Consumer Price Index.
There may not be much of a downside for the AUDUSD pair because the Australian dollar could find backing from the hawkish outlook of the Reserve Bank of Australia (RBA) regarding upcoming interest rate decisions. Now, traders are focusing on Australia’s October Monthly Consumer Price Index (CPI), which is due on Wednesday. This important indicator may affect expectations for domestic monetary policy.
The board is still wary of the possibility of additional inflationary pressures, according to the minutes of the RBA’s November meeting, which emphasizes the necessity of keeping a restrictive monetary policy stance. The board emphasized a flexible and data-driven approach, stressing the importance of keeping all options open for future policy changes, even though it acknowledged that there was no “immediate need” to change the cash rate.
Daily Digest Market Movers: As market sentiment wanes, the Australian dollar declines.
The USD’s value gauged by the US Dollar Index (DXY) Because of bond market optimism, performance against six major currencies still muted at 107.30. This comes after fund manager Scott Bessent, a seasoned Wall Street personality and fiscal conservative, chosen by President-elect Donald Trump to serve as the US Treasury secretary.
Strong preliminary S&P Global US Purchasing Managers’ Index (PMI) data supported expectations that the Federal Reserve (Fed) may slow the pace of rate cuts, containing downside risks for the USD.
The likelihood that the Fed will slow its rate-cutting pace has been strengthened by the most recent US PMI.
According to the CME FedWatch Tool, futures traders are now giving the Federal Reserve a 52.3% chance of reducing rates by a quarter point, down from 58.7% a week ago.
With the S&P Global US Composite PMI rising to 55.3 in November, private sector activity grew at its fastest rate since April 2022. . With the largest growth in the services sector since March 2022, the US Services PMI increased to 57.0 from 55.0 in October, well above the market’s forecast of 55.2. In the meantime, in line with market expectations, the US Manufacturing PMI rose from 48.5 in October to 48.8.
For the second time in three months, there was a slight decline in private sector output, as evidenced by the Judo Bank Australia PMI Composite Output Index, which fell from 50.2 in October to 49.4 in November. The manufacturing PMI contracted for ten consecutive months, rising from 47.3 in October to 49.4 in November. The first decline in services activity in a decade was indicated by the Services PMI, which dropped from 51.0 to 49.6.
The four biggest banks in Australia are forecasting the Reserve Bank of Australia’s initial rate reduction. Westpac has raised its initial cut prediction from February to May. The cut also anticipated in May by National Australia Bank (NAB). A rate cut in February being cautiously predict by ANZ and the Commonwealth Bank of Australia (CBA).
Fed Chair Jerome Powell emphasized the economy’s resilience, strong labor market, and ongoing inflationary pressures while downplaying the possibility of rate cuts in the near future. Powell said, “There are no indications from the economy that we should cut rates immediately.
