Australian Dollar declines as US Dollar strengthens ahead of PCE inflation data release – FXStreet

• The Australian dollar has weakened as Trump reaffirmed his plan to impose an additional 10% tariff on Chinese imports.
• On February 4th, US President Trump introduced new tariffs on Chinese products, bringing the total tax to 20%.
• US GDP rose 2.3% per year in the fourth quarter of 2024, meeting market expectations.

The Australian Dollar (AUD) has been under pressure for the sixth day in a row on Friday, with the AUD/USD pair extending their losing streak. The decline follows US President Donald Trump's reaffirmation that the 25% tariff he proposed will take effect on Mexican and Canadian goods, and that the 10% mandate on Chinese imports will be enforced, citing on continuing concerns over drug trafficking to the United States. Investors are awaiting Personal Consumption Expense Price Index (PCE) data, the Federal Reserve's preferred inflation gauge scheduled later in the day.

President Trump also imposed new tariffs on Chinese products and raised total collection to 20%, along with the 10% tariffs implemented on February 4th in response to the fentanyl opioid crisis. Given China's position as Australia's main trading partner, the new US tariff threat has allowed us to weigh the AUDs associated with China.

The AUD also faced headwinds after Australia's private capital expenditure data released on Thursday, with unexpected contracts being signed 0.2% quarterly in the fourth quarter of 2024, with market expectations rising 0.8%. This follows a 1.6% expansion revised upward in the last quarter.

Meanwhile, Andrew Hauser, Lieutenant Governor of the Reserve Bank of Australia, said Thursday that he hopes for more positive developments in inflation, but emphasized the need for concrete progress. He also emphasized that Australia's tough labor market remains a key challenge in controlling inflation.

Australian dollars are depreciated due to risk-off mood

• The US Dollar Index (DXY), which measures USD against six major currencies, was acquired after Thursday's release of GDP (Q4). DXY rises above 107.00 at the time of writing.
• The US GDP year expanded 2.3% in the fourth quarter of 2024. This figure coincided with initial estimates and was in line with market expectations.
• Federal Reserve Bank of Atlanta President Rafael Bostic said late Wednesday that the Fed should hold interest rates where they are, on a Bloomberg-by-Bloomberg level, at a level where they continue to put downward pressure on inflation.
• U.S. Secretary of Commerce Howard Lutnick said late Wednesday that April 3 would serve as a baseline for mutual tariff data. Lutnick also cited China as a major concern, saying it would not allow US Chinese vehicles.
• US Treasury Secretary Scott Bescent has expressed his commitment to working with Congress to make President Trump's tax cuts permanent.
• The White House said late Wednesday that US President Donald Trump issued an executive order aimed at implementing a Department of Government Efficiency (DOGE) cost-cutting drive on a Reuters-by-Reuters basis. The executive order requires agents to justify spending, limit travel, and identify surplus federal properties that can be sold.
• On Friday, President Trump signed a memorandum dictating the US Foreign Investment Committee (CFIU) to limit Chinese investment in the strategic sector. Reuters said the National Security Memorandum attempts to encourage foreign investment while protecting the US national security interests from the potential threat posed by foreign enemies like China.
• The People's Bank of China (PBOC) injected $300 billion on Tuesday through a one-year medium-term lending facility (MLF) to keep the fee at 2%. Additionally, PBOC injected CNY318.5 billion from a 7-day reverse repos of 1.50%, consistent with previous rates.
• The increasing risk of a trade war promoted by Trump has become a major concern, according to a Wall Street Journal report on the Australian dollar outlook from the Federal Bank of Australia (CBA). China's response to these trade threats is a key factor shaping the future performance of AUD.
• On Thursday, Le Ray, Lieutenant Governor of the People's Bank of China (PBOC), proposed to play an active role in supporting financing efforts, including issuing special financial obligations, to help major state-owned banks strengthen their common equity tier 1 (CET1) capital. It should be noted that changes in the Chinese economy could have an impact on AUD as China and Australia are close trading partners.
• The Reserve Bank of Australia (RBA) cut its official cash rate (OCR) by 25 basis points last week to 4.10%. Reserve Bank of Australia (RBA) Governor Michelle Bullock acknowledged the impact of high interest rates, but warned that it was too early to declare a victory over inflation. She also highlighted the strength of the labor market and made it clear that despite market expectations, future interest rate reductions are not guaranteed.

The Australian Dollar can test support of 0.6200 as it strengthens bearish bias

AUD/USD will trade approximately 0.6220 on Friday. Analyses of the daily charts show that the pair is below the 9- and 14-day index moving averages (EMA), weakening short-term price momentum. Additionally, the 14-day relative strength index (RSI) remains below 50, strengthening the general bearish outlook.

The AUD/USD pair tests immediate support at a psychological level of 0.6200. A break below this threshold could push the pair up towards the 0.6087 region, the lowest level since April 2020 recorded on February 3rd.

Conversely, the AUD/USD pair faces immediate resistance at a 9-day EMA of 0.6297 followed by a 14-day EMA at 0.6302. A critical break above these levels could bolster short-term price momentum, paving the way for the pair, who reached February 21, to challenge 0.6408 for two months.

AUD/USD: Daily Charts