AUD/USD encountered significant challenges on Wednesday, struggling to maintain its position above the 0.6300 mark. Concerns over a potential trade war between the United States and China, reminiscent of President Trump's first term, cast a shadow over the Australian dollar. Despite these worries, a positive risk tone lent some support to the Aussie, buoyed by a bearish US dollar.
The pressure on the USD stems from growing speculation that the Federal Reserve may enact two rate cuts this year. This anticipation has weakened the dollar, affecting its standing against various currencies. Meanwhile, USD/JPY attempted to capitalize on an overnight rebound from its one-month low, although the positive risk sentiment continues to undermine the appeal of the safe-haven Japanese yen.
President Trump's return did not immediately introduce new tariffs on his first day back in office. However, significant changes are anticipated in US trade policy under what is being termed Trump 2.0. Countries such as China, Canada, and Mexico are likely to find themselves at the forefront of any adjustments in US trade relations.
Simultaneously, NZD/USD experienced a decline of 0.44% for the day, reaching intraday lows near 0.5650. This movement coincided with the Reserve Bank of New Zealand (RBNZ) releasing its Sectoral Factor Model Inflation gauge for the fourth quarter of 2024. The inflation measure, which is closely monitored by the RBNZ, continued its downward trend, recording a year-over-year rate of 3.1%.
The RBNZ's Sectoral Factor Model plays a critical role in assessing core inflation by evaluating both tradable and non-tradable items. The central bank employs a suite of models to produce these core inflation estimates, aiming for a target range of 1% to 3%. The recent data highlights ongoing challenges in achieving this target amid broader economic uncertainties.
As the global economic landscape shifts with President Trump's return and potential changes in US trade policy, markets remain vigilant. The interplay between trade tensions and monetary policy decisions will be pivotal in shaping currency movements in the coming months.