- The Australian dollar rose as Prime Minister Albanese shared trade talks with President Trump last week.
- Australia's wage price index rose 3.5% year-on-year in the third quarter, slowing from a 4.1% rise in the second quarter.
- The North American session will focus on the announcement of the US consumer price index.
The Australian dollar (AUD) is looking to end its losing streak against the US dollar (USD) following a radio interview with Australian Prime Minister Anthony Albanese on Wednesday. Albanese said he discussed trade with US President-elect Donald Trump during a phone conversation last week. Mr Albanese told President Trump that the US had a trade surplus with Australia and stressed that it was in the US government's best interest to “trade fairly” with the ally.
AUD/USD remained weak after a weaker-than-expected Australian wage price index was released on Wednesday. Additionally, President Trump's optimism about the deal has strengthened the pair's downward trend.
Reserve Bank of Australia (RBA) Governor Michelle Bullock reaffirmed her hawkish stance after holding interest rates unchanged last week, stressing the need for restrained monetary policy amid continued inflation risks and a strong labor market. emphasized. Hawkish sentiment surrounding the RBA may have held back the Australian dollar's fall.
The dollar strengthened as analysts said President Trump's fiscal policies, if implemented, could increase investment, spending and demand for labor, raising inflation risks. This scenario could cause the Federal Reserve to consider a more restrictive monetary policy stance.
Traders are now looking to US inflation data to be released on Wednesday for further guidance on future US policy. The composite consumer price index (CPI) is expected to rise 2.6% year-on-year in October, while the core CPI is expected to rise 3.3%.
Australian dollar under pressure from possible Trump tariffs on China
- Australia's wage price index rose 3.5% year-on-year in the third quarter, slowing from the previous quarter's 4.1% rise and below expectations for a 3.6% rise. This will be the lowest wage growth rate since the fourth quarter of 2022.
- Minneapolis Fed President Neel Kashkari said Tuesday that the central bank remains confident in its long-term fight against temporary inflation, but it is too early to declare complete victory. Kashkari also said the Fed will hold off modeling the economic impact of President Trump's policies until the details of his policies become clearer.
- Australia's Westpac Consumer Confidence Index rose 5.3% to 94.6 points in November, marking the second consecutive month of improvement and the highest level in two-and-a-half years. However, the index has remained below 100 for nearly three years, reflecting that pessimists still outnumber optimists.
- “Consumers are feeling less pressure on their finances, less worried about further interest rate rises and are more confident about the economic outlook,” said Matthew Hassan, senior economist at Westpac.
- Bloomberg News reported early Tuesday that Chinese regulators are planning to cut taxes on home purchases. The report said authorities are working on a proposal that would allow major cities to reduce deed tax on buyers from the current maximum rate of 3% to a minimum of 1%.
- China's latest stimulus package fell short of investors' expectations, further deteriorating the demand outlook for Australia's largest trading partner and weighing on the Australian dollar. China on Friday announced a 10 trillion yuan debt policy aimed at easing financing pressure on local governments and supporting sluggish economic growth. However, this policy did not lead to the implementation of direct economic stimulus measures.
- Morgan Stanley divides the Trump administration's macroeconomic policy into three main areas: tariffs, immigration, and fiscal measures. The report predicts that tariff policy will be prioritized, with tariffs of 10% worldwide and 60% expected to be imposed immediately, particularly on China.
- On Thursday, Fed Chairman Jerome Powell said he did not expect Trump's possible return to the White House to affect the Fed's near-term policy decisions. “We're left speculating and speculating and wondering what the government's policy choices will be in the future,” Powell said after the central bank cut interest rates by 25 basis points to a range of 4.50 to 4.75%, as expected. I don't make any assumptions.” .
The Australian dollar fell towards a three-month low around 0.6500.
AUD/USD is trading around 0.6530 on Wednesday. Daily chart analysis shows near-term downward pressure as the pair is below its 9-day exponential moving average (EMA). Additionally, the 14-day Relative Strength Index (RSI) remains below the 50 level, further supporting the bearish outlook.
On the support side, the AUD/USD pair is testing the three-month low of 0.6512 hit on November 6th, with further psychological support at 0.6500.
On the upside, resistance appears at the 9-day EMA at 0.6576, followed by the 14-day EMA at 0.6593. A break above these EMAs could push the AUD/USD pair towards a three-week high of 0.6687, with the next psychological target at 0.6700.
AUD/USD: daily chart
Central Bank Frequently Asked Questions
Central banks have the important mission of ensuring price stability in a country or region. Whenever the prices of certain goods and services change, an economy faces inflation or deflation. A continuous increase in the price of the same product indicates inflation, and a continuous decrease in the price of the same product indicates deflation. The central bank's job is to keep demand constant by adjusting policy interest rates. The mandate for the largest central banks, such as the US Federal Reserve (Fed), European Central Bank (ECB), and Bank of England (BOE), is to keep inflation close to 2%.
Central banks have one important tool at their disposal to raise or lower inflation. It is to adjust the base policy rate, commonly known as the interest rate. Upon prior communication, the central bank will issue a statement regarding the policy rate and provide additional reasons as to why it may maintain or change (lower or increase) the policy rate. Local banks will adjust their savings and lending rates accordingly, making it harder or easier for people to earn money on their savings and for businesses to take out loans and invest in their businesses. I will do it. Monetary tightening is when a central bank significantly raises interest rates. Lowering the base interest rate is called monetary easing.
Central banks are often politically independent. Members of the central bank policy committee go through a series of panels and hearings before being appointed to the policy committee seat. Each member of the board often has certain beliefs about how the central bank should control inflation and subsequent monetary policy. Doves are members who are happy with inflation slightly above 2% but want a very accommodative monetary policy with low interest rates and low lending to significantly boost the economy. Members who would rather raise interest rates to reward savings and keep a constant eye on inflation are called “hawks'' and will not rest until inflation is at or slightly below 2%.
There is usually a chairperson or president who leads each meeting, and consensus must be built between hawks and doves, with votes split to avoid a 50-50 tie on the pros and cons of the current topic. have the final say in the matter. Policies need to be adjusted. The chair often gives a speech that can be viewed live, conveying the current financial stance and outlook. Central banks seek to promote monetary policy without causing wild fluctuations in interest rates, stocks, and currencies. All members of the central bank are expected to signal their stance on markets ahead of the policy meeting event. Starting several days before the policy meeting, members are prohibited from speaking publicly until new policies are communicated. This is called the blackout period.
