Australian Dollar edges higher, upside seems limited due to Trump's tariff threat

• The Australian Dollar faced downward pressure from concerns over Trump's tariffs on Chinese goods.
• The AUD faced challenges as China's latest stimulus measures fell short of investors' expectations.
• Trump's fiscal policies could heighten inflation risks, prompting the Fed to adopt a more restrictive policy stance.

The Australian Dollar (AUD) gains ground on Monday despite a generally negative outlook driven by concerns over Donald Trump's proposed tariff increases on Chinese goods, which could impact Australian markets, one of China's largest trading partners. US markets will be closed for the Veteran's Day Bank Holiday.

The AUD also faced potential downward pressure from lower-than-expected Chinese Consumer Price Index (CPI) data released on Saturday. Additionally, China's latest stimulus measures fell short of investor expectations, further dampening demand prospects for Australia's largest trading partner and weighing on the Australian Dollar.

On Friday, China announced a 10 trillion Yuan debt package designed to alleviate local government financing pressures and support struggling economic growth. However, the package stopped short of implementing direct economic stimulus measures.

Australia's 10-year government bond yield dropped to around 4.6%, reflecting a decline in US bond yields following the Federal Reserve's widely anticipated 25 basis point interest rate cut. Last week, the Reserve Bank of Australia (RBA) kept its interest rate unchanged at 4.35%. The central bank emphasized that underlying inflation remains too high and is not expected to return to its target until 2026.

Daily Digest Market Movers: Australian Dollar faces challenges due to Trump's tariff threats

• Federal Reserve Bank of Minneapolis President Neel Kashkari stated on Sunday that the US economy has shown remarkable resilience as the Fed continues its efforts to curb inflation. However, Kashkari noted that the Fed is still "not all the way home." He also mentioned that the Fed aims to be confident that inflation will fully return to the 2% target and needs additional evidence before considering another rate cut.
• Morgan Stanley divides the Trump administration's macroeconomic policies into three key areas: tariffs, immigration, and fiscal measures. The report predicts that tariff policies will be prioritized, with an anticipated immediate imposition of 10% tariffs globally and 60% tariffs specifically on China.
• Analysts suggest that if Trump's fiscal policies are implemented, they could lead to higher investment, spending, and labor demand, elevating inflation risks. This could prompt the Fed to adopt a more restrictive monetary policy, potentially strengthening the US Dollar and putting additional pressure on the AUD/USD pair.
• However, Fed Chair Jerome Powell stated on Thursday that he doesn't anticipate Trump's potential return to the White House impacting the Fed's near-term policy decisions. "We don't guess, speculate, and we don't assume what future government policy choices will be," Powell noted after the bank decided to lower interest rates by 25 basis points to a range of 4.50%-4.75%, as expected.
• Fed Chair Jerome Powell also emphasized that the Fed will continue to assess economic data to decide on the "pace and destination" of future rate changes, highlighting that inflation has been gradually slowing toward the Fed's 2% target.
• China's Consumer Price Index (CPI) rose 0.3% year-over-year in October, slightly below market expectations and down from September's 0.4%. This marks the ninth consecutive month of consumer price inflation but represents the lowest rate since June. Month-over-month, the CPI dropped by 0.3%, a sharper decline than the expected 0.1% decrease, following a flat reading in September.
• On Friday, the preliminary University of Michigan Consumer Sentiment Index rose to 73.0 in November, up from 70.5 in October and exceeding the market's expectation of 71.0.
• US Initial Jobless Claims rose to 221,000 for the week ending November 1, according to a Thursday report from the US Department of Labor (DoL). This figure aligned with initial estimates and was up from the previous week's revised total of 218,000 (originally reported as 216,000).

Technical Analysis: Australian Dollar trades below 0.6600, nine-day EMA

The AUD/USD pair trades around 0.6590 on Monday. Daily chart analysis indicated short-term downward pressure as the pair is positioned below the nine-day Exponential Moving Average (EMA). Additionally, the 14-day Relative Strength Index (RSI) has broken below the 50 mark, further suggesting that a bearish sentiment is prevailing.

In terms of support, the AUD/USD pair may approach its three-month low at 0.6512, which was recorded on November 6, followed by key psychological support at 0.6500.

On the upside, the immediate resistance appears at the nine-day EMA at 0.6604, followed by the 14-day EMA at 0.6616. A breakthrough above these EMAs could lead the AUD/USD pair to revisit its recent high at 0.6687 level, followed by the psychological level of 0.6700.

AUD/USD: Daily Chart