The Australian dollar (AUD) lost momentum on Tuesday after a strong performance the previous trading day. Due to US President Donald Trump's statement that "if we reach a TikTok agreement and China does not approve it, we may impose tariffs on China," the AUD/USD pair remained weak. This statement was made after he signed an executive order to postpone the implementation of the TikTok ban for 75 days. Due to China and Australia being close trading partners, any changes in the Chinese economy could have an impact on the Australian market.

The S&P/ASX 200 index climbed to nearly 8400 points on Tuesday, reaching its highest level in six weeks. This increase occurred after Donald Trump took office in his second term, and the market reacted positively to his decision not to announce any new tariffs.

Traders are increasingly expecting the Reserve Bank of Australia (RBA) to start cutting interest rates as early as next month. This sentiment is driven by weak core inflation data, which has dropped to its lowest level since the fourth quarter of 2021, approaching the RBA's 2% to 3% target range. The focus now shifts to Australia's upcoming quarterly inflation report, scheduled to be released next week, which may provide more insights into the path of interest rates.

On Monday, the People's Bank of China (PBOC) announced that it would keep the loan market quoted rate (LPR) unchanged. The one-year loan market quoted interest rate (LPR) remains at 3.10%, and the five-year LPR remains at 3.60%.

Trump has not announced new tariffs, Australian dollar may appreciate

The US Dollar Index (DXY), which tracks the performance of the US dollar against six major currencies, has risen to approximately 108.50 at the time of writing this article. However, a Bloomberg report shows that President Trump will not immediately announce new tariffs after taking office on Monday, which has put the US dollar in resistance. On the contrary, Trump plans to instruct federal agencies to review tariff policies and trade relations between the United States and Canada, Mexico, and China.

It is expected that the Federal Reserve (Fed) will maintain the benchmark overnight interest rate within the range of 4.25% -4.50% at its January meeting. However, investors believe that Trump's policies may push inflationary pressures and limit the Federal Reserve to only cut interest rates once more. This may help alleviate significant losses of the US dollar in the short term.

Retail sales in the United States increased by 0.4% month on month in December, reaching $729.2 billion. This data is lower than the market's expected 0.6% growth and also lower than the previous value of 0.8% (revised from 0.7%).

The US Consumer Price Index (CPI) rose 2.9% year-on-year in December, higher than November's 2.7%, in line with market expectations. The monthly CPI increased by 0.4%, compared to a 0.3% increase in the previous month. Excluding volatile food and energy prices, the US core CPI rose 3.2% year-on-year in December, slightly lower than the November figures and analysts' forecast of 3.3%.

On Thursday, Federal Reserve Bank of Chicago President Austin Goolsby said he has become increasingly confident in the past few months that the labor market is stabilizing at a level similar to full employment, rather than deteriorating into a worse situation, according to Reuters.

Donald Trump's nominated Treasury Secretary Scott Besant emphasized that maintaining the US dollar as the world's reserve currency is crucial for the country's economic stability and future prosperity. Besent stated that "priority must be given to productive investments that can promote economic growth, rather than wasteful spending that drives inflation," according to Bloomberg.

In its latest brown book survey released last week, the Federal Reserve reported that economic activity slightly to moderately increased in the twelve Federal Reserve districts at the end of November and December. Consumer spending has moderately increased, driven by strong holiday sales, exceeding expectations. However, overall manufacturing activity has slightly declined as some manufacturers hoarded inventory in anticipation of higher tariffs.

Technical analysis: The Australian dollar has fallen below 0.6250, approaching the nine day EMA

The Australian dollar/US dollar pair traded around 0.6230 on Tuesday, attempting to fall back to the downward channel on the daily chart. A successful pullback will indicate that bearish sentiment is still playing a role. The 14 day Relative Strength Index (RSI) remains below the 50 level, indicating that bearish sentiment still exists.

The Australian dollar/US dollar pair tested the nine day moving average (EMA) at 0.6220. The stronger support level is located at the recent low of 0.6131 level. If it falls below this level, the AUD/USD pair may fluctuate near the lower boundary of the downtrend channel, around the 0.5890 level.

On the upside side, the AUD/USD pair may approach a psychological level of 0.6300.