The Australian Dollar (AUD) has experienced a sixth consecutive day of decline, pressured by US tariffs proposed by President Trump on Mexican, Canadian, and Chinese goods. These tariff announcements have led to concerns about the AUD’s performance given China’s significant trade relationship with Australia.

Recent Australian Private Capital Expenditure data showed a contraction of 0.2% in Q4 2024, falling short of the expected 0.8% growth. This follows a previous quarter’s growth of 1.6%.

The US Dollar Index (DXY) rose above 107.00, aided by a 2.3% expansion in US GDP for Q4 2024, meeting market expectations. Further comments from officials indicated a preference for maintaining current interest rates amidst inflation pressures.

The People’s Bank of China injected CNY300 billion into the economy, alongside additional liquidity measures to support state-owned banks. The Commonwealth Bank of Australia noted that escalating trade tensions could adversely affect the AUD.

The Reserve Bank of Australia recently lowered its Official Cash Rate to 4.10%, marking its first cut in four years, while cautioning that it is premature to declare an end to inflation concerns.

Currently, the AUD/USD is around 0.6220, testing support at the 0.6200 level. A breach could see it drop to 0.6087, whereas resistance levels are noted at 0.6297 and 0.6302. The overall market sentiment remains bearish for the currency pair.

The continued slide in the Australian Dollar suggests that traders are adjusting their positions in light of external economic headwinds. With tariffs from the US directly impacting China, Australia’s largest trading partner, the effects are naturally cascading down to the currency. The pressure on AUD is compounded by recent data showing private capital expenditure slipping into negative territory, missing expectations by a broad margin. This underscores hesitation among businesses regarding investment, likely due to uncertainty in both domestic and global conditions.

Meanwhile, in the US, a robust GDP reading of 2.3% for the last quarter of 2024 has reinforced confidence in the Dollar. This figure, aligning precisely with expectations, has provided further justification for policymakers to hold interest rates steady. Officials continue to prioritise inflation management, and with growth holding firm, there’s no immediate reason for them to shift their stance.

Over in China, policymakers have taken additional steps to stabilise economic conditions through further liquidity injections, amounting to CNY300 billion. Extra support for state-owned banks signals that authorities want to prevent any financial strains from worsening. However, considering the current backdrop of trade difficulties, these measures may not be enough to provide a lasting boost to the Australian Dollar. Commonwealth Bank analysts highlighted the likelihood of continued downside risk as trade restrictions persist.

Domestically, an interest rate cut by the Reserve Bank of Australia has introduced further challenges for the currency. Taking the Official Cash Rate down to 4.10% was a response to easing inflationary pressures, but central bankers were careful to stress that inflation remains a concern. This suggests that while further cuts may be on the table, they are by no means guaranteed. Given that higher rates tend to support a currency by offering better returns, the recent adjustment has instead had the opposite effect, contributing to weakness in the exchange rate.

As for the technical setup, the Australian Dollar has been hovering around 0.6220 against the US Dollar, with traders watching to see if it will hold above 0.6200. A drop below that level could bring 0.6087 into play, deepening the bearish trend. On the upside, resistance sits between 0.6297 and 0.6302, which would require a shift in sentiment and some relief in external risks to be tested. For now, the prevailing mood in the market remains cautious, with sellers still in control.