Australian Dollar Appreciates Following Trade Discussions Between PM Albanese and Trump

Overview

The Australian Dollar (AUD) gained momentum against the US Dollar (USD) during the Wednesday Asian trading session after Australia’s Prime Minister Anthony Albanese revealed a recent trade discussion with US President-elect Donald Trump. Albanese emphasized the trade surplus that the US holds with Australia, urging that maintaining fair trade practices would be mutually beneficial. This revelation injected some optimism into the AUD despite mixed economic data.

Key Factors Impacting AUD Movement

1. Albanese-Trump Trade Discussions

• PM Anthony Albanese’s Radio Interview: The Australian PM disclosed that he had a constructive phone call with President-elect Trump the previous week, discussing trade relations. Albanese highlighted that maintaining equitable trade practices would benefit the US, given its trade surplus with Australia.
• Strategic Focus on Fair Trade: This conversation is perceived as a reassurance that Australia remains a key ally, which may mitigate potential economic uncertainties tied to Trump’s historically protectionist policies.

2. Australia’s Wage Price Index Data

• Q3 Wage Growth: The latest data showed that Australia’s Wage Price Index rose by 3.5% year-over-year in Q3, a decline from the 4.1% increase recorded in Q2 and below market expectations of 3.6% growth. This is the slowest pace since Q4 2022.
• Impact on AUD: The weaker wage growth data initially weighed on the Australian Dollar, contributing to cautious sentiment among investors.

RBA’s Hawkish Stance

• RBA Governor Michele Bullock: Despite holding interest rates steady last week, Governor Bullock reinforced the need for a restrictive monetary policy due to persistent inflation risks and a robust labor market.
• Monetary Policy Expectations: Bullock’s hawkish outlook may have helped limit the downside for the AUD amid broader economic pressures.

AUD/USD Daily Price Chart

Source: TradingView, prepared by Richard Miles

US Dollar Strength and Fed Policy

1. Expectations from Trump’s Fiscal Policies

• Inflation Concerns: Analysts speculate that if Trump’s proposed fiscal policies are enacted, they could trigger higher investment, consumer spending, and labor demand, potentially driving up inflation.
• Federal Reserve Response: A scenario with heightened inflationary pressure could lead the Federal Reserve to maintain a restrictive policy stance, bolstering the USD.

2. Upcoming US CPI Data

• Focus on Inflation Metrics: Traders are closely watching for the release of the US October Consumer Price Index (CPI) later on Wednesday. Market consensus points to a year-over-year headline CPI increase of 2.6% and a core CPI rise of 3.3%.
• Potential Market Reactions: A higher-than-expected CPI reading could push the Fed to maintain a more aggressive monetary stance, strengthening the USD further. Conversely, a softer report might prompt traders to consider potential rate cuts in December, pressuring the USD.

Additional Market Sentiments

1. Westpac Consumer Confidence Index

• Consumer Sentiment Rise: The Westpac Consumer Confidence index climbed by 5.3% in November, reaching 94.6 points—the highest level in two and a half years. Despite this improvement, the index remains below 100, indicating a continued prevalence of pessimism.
• Insights from Westpac: Senior Economist Matthew Hassan pointed out that consumers are starting to feel less pressure on their finances and are becoming more confident about the economic outlook as concerns over further rate hikes subside.

2. Potential Tariffs and China’s Economic Measures

• Trump’s Tariff Policies: Speculation around President-elect Trump’s potential tariffs on Chinese imports adds to the downward pressure on the AUD, given China’s pivotal role as Australia’s major trading partner.
• Chinese Regulatory Actions: Reports indicate that Chinese regulators may be planning to reduce taxes on home purchases in major cities, which could have broader implications for commodity-linked currencies like the AUD.

The Australian Dollar has shown resilience, buoyed by Prime Minister Albanese’s positive trade discussions with President-elect Trump. However, mixed economic data—such as the decline in wage growth—and external factors like US inflation data and potential US-China trade policies will continue to influence the AUD’s trajectory. Market participants remain vigilant, awaiting further signals from both Australian economic indicators and US monetary policy directions.