Australian Dollar depreciates due to risk aversion following Trump’s tariff decision

• The Australian Dollar extends its losses as market sentiment takes a hit following Donald Trump’s announcement of increase in tariffs.
• Australia’s Monthly Consumer Price Index for October is the focus on Wednesday.
• The latest US PMI has reinforced the likelihood of the Fed slowing the pace of rate cuts.

The Australian Dollar (AUD) continues to weaken against the US Dollar (USD) on Tuesday, driven by dampened market sentiment following President-elect Donald Trump's announcement of a 10% increase in tariffs on all Chinese goods entering the United States (US), along with a 25% tariff on imports from Mexico and Canada.

The downside for the AUD/USD pair may be limited, as the Australian Dollar could find support from the Reserve Bank of Australia's (RBA) hawkish outlook on future interest rate decisions. Traders are now turning their attention to Australia’s Monthly Consumer Price Index (CPI) for October due on Wednesday, a key indicator that could influence expectations regarding domestic monetary policy.

The RBA’s November Meeting Minutes indicated that the board remains cautious about the risk of further inflationary pressures, underscoring the need to maintain a restrictive monetary policy stance. While the board noted there was no "immediate need" to adjust the cash rate, it stressed the importance of keeping all options open for future policy changes, highlighting a flexible and data-driven approach.

Daily Digest Market Movers: Australian Dollar weakens amid dampened market sentiment

• The US Dollar Index (DXY), which measures the USD's performance against six major currencies, remains subdued near 107.30 due to bond market optimism. This follows President-elect Donald Trump's selection of fund manager Scott Bessent as the US Treasury secretary, a seasoned Wall Street figure and fiscal conservative.
• The downside risks for the USD remain contained, bolstered by robust preliminary S&P Global US Purchasing Managers’ Index (PMI) data, which have reinforced expectations that the Federal Reserve (Fed) may slow the pace of rate cuts.
• Futures traders are now assigning a 52.3% probability to the Federal Reserve cutting rates by a quarter point, down from 58.7% a week earlier, according to the CME FedWatch Tool.
• In November, S&P Global US Composite PMI climbed to 55.3, indicating the strongest growth in private sector activity since April 2022. The US Services PMI rose to 57.0, up from 55.0 in October and significantly surpassing market expectations of 55.2, marking the sharpest expansion in the services sector since March 2022. Meanwhile, the US Manufacturing PMI increased to 48.8 from 48.5 in October, aligning with market forecasts.
• The Judo Bank Australia PMI Composite Output Index dropped to 49.4 in November from 50.2 in October, indicating a modest contraction in private sector output for the second time in three months. Manufacturing PMI rose to 49.4 in November from 47.3 in October, marking its 10th consecutive month of contraction. Meanwhile, the Services PMI fell to 49.6 from 51.0, signaling the first contraction in services activity in ten months.
• Australia's four largest banks are predicting the Reserve Bank of Australia's first rate cut. Westpac has revised its forecast for the first cut to May, up from February. National Australia Bank (NAB) also expects the cut in May. Meanwhile, the Commonwealth Bank of Australia (CBA) and ANZ are cautiously forecasting a rate cut in February.
• Fed Chair Jerome Powell downplayed the likelihood of imminent rate cuts, highlighting the economy's resilience, robust labor market, and persistent inflationary pressures. Powell remarked, "The economy is not sending any signals that we need to hurry to lower rates."

Australian Dollar extends losses to near 0.6450 due to persistent bearish bias

The AUD/USD pair hovers near 0.6470 on Tuesday, with technical analysis of the daily chart suggesting strengthening short-term bearish momentum. The pair remains confined within a descending channel, while the 14-day Relative Strength Index (RSI) stays below 50, signaling persistent negative sentiment.

On the downside, the AUD/USD pair could test its yearly low of 0.6348, last reached on August 5, with additional support found near the descending channel's lower boundary at 0.6330.

The resistance lies at the nine-day EMA of 0.6503 and the 14-day EMA of 0.6512. A decisive break above these levels could weaken the bearish outlook and open the door for a potential rally toward the four-week high of 0.6687.

AUD/USD: Daily Chart