- The Australian dollar is struggling as Trump threatens to impose 200% tariffs on Chinese goods.
- Minutes from the RBA’s meeting indicate that interest rate cuts may be necessary next year.
- President Trump has removed Federal Reserve Governor Cook from her position on the Fed’s board.
The Australian Dollar (AUD) is expected to weaken against the US Dollar (USD) on Tuesday, marking its second day of losses. The AUD/USD pair is under pressure as President Trump has indicated that he might impose a 200% tariff on Chinese products if China doesn’t provide magnets to the U.S., according to Reuters. Given the tight trade ties between Australia and China, any shifts in the Chinese economy could certainly influence the AUD.
Moreover, the AUD faces additional hurdles with the Reserve Bank of Australia’s (RBA) minutes from their August Monetary Policy Conference suggesting that board members foresee the necessity for further cash interest rate cuts next year.
These minutes revealed that policymakers believe the rate cut pace relates closely to incoming data and global risks. While the board discussed both slowing and accelerating easing, the labor market is still somewhat tight, inflation remains above the target midpoint, and domestic demand is on the mend.
In a related note, the US dollar is facing scrutiny due to rising concerns over Federal Reserve independence after Trump’s recent announcement to remove Governor Lisa Cook. He shared this news through social media early Tuesday, suggesting that her exit would give him more leverage over the Fed’s policies. Although Cook stated she would continue to fulfill her obligations, it raises questions about the Fed’s autonomy.
Australian dollar remains weak amid risk aversion despite a softer USD
- The US Dollar Index (DXY), which tracks the US dollar against six major currencies, was down to around 98.30. Traders are watching for upcoming data on inflation, the GDP for the second quarter, and the personal consumption expenditure price index for July.
- Trump has also hinted at potential “additional tariffs” and restrictions on advanced technology as retaliation for a Digital Services Tax affecting American tech companies, as reported by Bloomberg.
- Federal Reserve Chair Jerome Powell, at the Jackson Hole Symposium, raised concerns about rising risks in the job market. Yet he mentioned that inflation remains a significant issue and decisions are not final. He indicated that the Fed sees no need to tighten policy based on uncertain forecasts suggesting employment may exceed sustainable levels.
- Initial unemployment claims in the US rose to 235K last week, surpassing expectations of 225K. This hints at some softening in labor market conditions.
- The robust PMI data alongside increased jobless claims presents a challenge for the Federal Reserve, making it difficult to gauge sustained inflationary pressures amid signs of a weakening labor market. According to the CME FedWatch tool, Fed Funds Futures Traders estimated an 82% chance of interest rate cuts on Wednesday, decreasing to 74% for September.
- Chicago Fed President Austan Goolsbee mentioned on Thursday that the September conference would be open to action, stating the Fed is receiving mixed signals about the economy. Boston Fed President Susan Collins has also indicated support for September cuts, citing labor market challenges.
- The preliminary S&P Global US Combined PMI showed an uptick in August, with the index rising from 55.1 to 55.4. Meanwhile, the US manufacturing PMI increased from 49.8 to 53.3, exceeding market expectations of 49.5, although the Service PMI dipped slightly from 55.7 to 55.4, remaining above the expected 54.2.
Australian Dollar testing resistance around 0.6500
As of Tuesday, the AUD/USD pair is trading near 0.6480. From a technical standpoint, daily charts indicate the pair’s effort to break out of a downward channel, hinting at a possible shift from a bearish to a bullish outlook. This is supported by the pair trading above the nine-day EMA, signaling strong short-term momentum.
The AUD/USD pair is testing a resistance zone at around 0.6590, coinciding with a 50-day exponential moving average (EMA) of 0.6494. If the pair breaks through this critical resistance, it could confirm a bullish shift, potentially driving it toward a monthly high from August 14 and a nine-month peak of 0.6625 noted on July 24.
On the downside, there’s immediate support at the 9-day EMA of 0.6477. If it breaks below this level, the pair could see weaker momentum, putting pressure on it to target the two-month low of 0.6414 observed on August 21.
