Synopsis:

Despite DXY strength, the AUD has remained resilient, supported by expectations of a "hawkish" RBA rate cut, potential exemptions from US tariffs, and cross-buying in AUD/NZD and AUD/CAD. However, trade risks from broader tariffs on China, Japan, and South Korea could weigh on Australian exports. AUD/USD target remains 0.62 by end-Q1.

Key Points:

1. Hawkish RBA Rate Cut Expected

   • Markets price in a 90% chance of a rate cut in February, but longer-term yields are rising as markets price in a more cautious easing path.
   • US tariffs could add to global inflation pressures, limiting the RBA's ability to cut aggressively.

2. US Tariffs & Potential Australian Exemptions

   • Trump may exempt Australia from steel & aluminum tariffs, but this will take months to confirm.
   • Australia’s trade deficit with the US gives it leverage in negotiations, as PM Anthony Albanese secures a meeting with Trump.
   • However, indirect risks remain, as tariffs on China, Japan, and South Korea could hit Australian iron ore, bauxite, and coal exports, which make up 35% of total goods exports.

3. Cross-buying in AUD/NZD and AUD/CAD Providing Support

   • AUD is benefiting from relative weakness in CAD and NZD, helping maintain resilience against broader USD strength.

4. AUD/USD Forecast: 0.62 by End-Q1

   • Despite strong US economic data and USD support, Australia’s economic outlook and trade considerations keep AUD from falling further.

Conclusion:

The AUD remains stable despite global trade concerns due to expectations of a hawkish RBA cut, potential tariff exemptions, and cross-buying flows. However, indirect risks from Chinese and Asian trade exposure remain a downside factor. Credit Agricole maintains a 0.62 AUD/USD target for end-Q1.