The AUD/USD pair retraced some of its intraday gains on Friday but remained above the 0.6500 psychological threshold during early European trading, marking its third consecutive day of growth.
The US Dollar (USD) struggled to sustain Thursday’s modest recovery, dipping to a fresh two-week low. Market expectations of a potential 25-basis-point rate cut by the Federal Reserve in December have weighed on the greenback, providing a boost to the AUD/USD pair. However, investor enthusiasm was tempered by concerns that US President-elect Donald Trump’s proposed tariffs could ignite a trade war with China.
Adding to the uncertainty, the US Personal Consumption Expenditure (PCE) Price Index, released earlier in the week, signaled a stall in inflation reduction during October. Combined with fears that Trump’s expansionary fiscal policies may stoke inflationary pressures, this has fueled speculation that the Federal Reserve could hold off on further rate cuts. This has limited the USD’s losses and capped the AUD/USD pair’s upside potential.
Geopolitical risks, particularly the prolonged Russia-Ukraine conflict, have also kept market participants cautious about making aggressive bets on the risk-sensitive Australian Dollar (AUD). With no major US economic data scheduled for release on Friday, the AUD/USD remains tied to USD dynamics and appears set to close the week relatively flat.
Looking ahead, the release of China’s official Purchasing Managers’ Index (PMI) data over the weekend could significantly influence sentiment surrounding the China-linked Aussie. Traders will also turn their attention to key US macroeconomic data next week, including the Nonfarm Payrolls (NFP) report and Australia’s Q3 GDP growth figures, which could provide clearer market direction.
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