The Australian Dollar (AUD) continues to hold its losses and remains subdued against the robust US Dollar (USD) as traders exercise caution in anticipation of the crucial US November Consumer Price Index (CPI) data, set to be released later during the North American session on Wednesday.
The US CPI inflation is forecasted to increase to 2.7% year-over-year in November from 2.6% in October. Meanwhile, the core CPI, excluding food and energy, is expected to stay steady at a 3.3% year-over-year increase. Any sign that the progress in taming inflation has stalled could greatly reduce the likelihood of a Federal Reserve (Fed) rate cut, thereby potentially strengthening the US Dollar further. Currently, according to the CME FedWatch Tool, markets are pricing in nearly an 85.8% chance of a 25-basis point rate cut by the Fed on December 18.
The AUD has faced downward pressure following the Reserve Bank of Australia’s (RBA) decision to maintain the Official Cash Rate (OCR) unchanged at 4.35% in its final policy meeting of December. RBA Governor Michele Bullock pointed out that while upside inflation risks have eased, they still persist and require continuous monitoring. The RBA will closely keep an eye on all economic data, including employment figures, to inform future policy decisions.
In other economic developments, China has played a significant role in influencing the Australian Dollar’s dynamics. President Xi Jinping stated on Tuesday that “China has full confidence in achieving this year’s economic target.” He emphasized China’s role as the largest engine of global economic growth and cautioned against the futility of tariff wars, trade wars, or tech wars. China’s Trade Balance (CNY) saw an increase to CNY 692.8 billion in November from CNY 679.1 billion in the previous month. Exports grew by 1.5% year-over-year in November compared to a 11.2% rise in October, while imports increased by 1.2% year-over-year, rebounding from a 3.7% decline earlier.
Australia’s domestic economic indicators also paint a picture of its economic situation. The Australian Unemployment Rate remained at 4.1% in October for the third consecutive month, with the economy adding 9,700 full-time jobs and 6,200 part-time roles, resulting in a net change of 15,900 positions. The RBA’s closely watched inflation gauge, the annual Trimmed Mean Consumer Price Index (CPI), slowed to 3.5% from 4.0% in the third quarter but still remains well above the bank’s 2% – 3% target. Moreover, Australia’s economy grew at its slowest annual pace since the pandemic in the third quarter, with the Gross Domestic Product (GDP) rising by 0.3% in the September quarter, falling short of market forecasts of 0.4%. This weaker-than-expected GDP growth has led markets to almost fully price in a rate cut next April, with the probability increasing to 96% from 73% before, as per Refinitiv interest rate probabilities data.
The US November Non-Farm Payrolls (NFP) data from Friday showed a healthy gain of 227,000, surpassing expectations, along with stable Average Hourly Earnings growth at 0.4% month-over-month.
On the other hand, the Australian Dollar has received some support from improved sentiment and stimulus expectations emerging from China. Chinese leaders have announced plans for proactive fiscal and looser monetary policies to boost domestic consumption in 2024. However, weak Chinese CPI data (-0.6% in November, worse than expected) highlights the challenges in the economic recovery but also fuels speculation about potential stimulus measures.
From a technical analysis perspective, the AUD/USD pair is trading near 0.6370 on Wednesday. The daily chart reveals strengthening bearish momentum as the pair moves downward within a descending channel pattern. The 14-day Relative Strength Index (RSI) is positioned slightly above 30, indicating a sustained negative sentiment. The immediate support level appears around its yearly low of 0.6348, last witnessed on August 5. Should the pair break below this level, it could 强化 the bearish bias and exert downward pressure on the AUD/USD pair, potentially pushing it towards the lower boundary of the descending channel at around the 0.6220 level.
Conversely, on the upside, the AUD/USD pair may encounter initial resistance around the nine-day Exponential Moving Average (EMA) at 0.6428, followed by the 14-day EMA at 0.6449, which closely aligns with the upper boundary of the descending channel. A decisive breakout above this channel could open the door for a potential rally towards the seven-week high of 0.6687.
Related topics:
INR Slips, USDINR Ascends on Growth Concerns
GBP/USD Maintains Stability Above 1.2700 Amid Cautious Sentiment
Crude Oil Surges Past $70 Amid OPEC+ Speculations and Geopolitical Tensions
