AUD Weakens Ahead of Second Day of Trump–Xi Meeting
The Australian dollar (AUD) weakened against the US dollar, with AUD/USD falling to around 0.7205 in early Asian trading on Friday. Markets are cautious ahead of the second and final day of the meeting between US President Donald Trump and Chinese President Xi Jinping in Beijing.
On the first day of the meeting on Thursday, Trump said he hoped the US–China relationship would be “stronger and better than ever.” Trump also said Xi offered to help de-escalate the conflict and promised not to supply military equipment to Iran.
From China's perspective, Xi reportedly wants the Strait of Hormuz reopened. Another prominent focus is Taiwan, after Xi warned Trump that mishandling China's claim to Taiwan could trigger “a clash or even a conflict,” given that the disputed island was a key topic of discussion at the meeting.
Market sensitivity to this issue is high because the AUD is often viewed as a “China proxy,” given that China is Australia's main trading partner. Therefore, any sign of escalating US–China tensions could put pressure on the AUD.
At the same time, renewed strength in US inflation data reinforced expectations that the Federal Reserve would maintain high interest rates for longer, supporting the US dollar. The market also assessed that the possibility of a rate hike remains open towards the end of the year, with CME FedWatch indicating a probability of around 32.9% for a 25 bps hike at the December meeting, up from 22.5% a week earlier.
Going forward, the direction of AUD/USD will be largely influenced by two factors: the final outcome of the Trump-Xi talks and how the market interprets the Fed's interest rate path following a series of hotter-than-expected inflation data. (asd)
Source: Newsmaker.id
