The Australian Dollar faced an uphill battle on Friday, inching towards 0.6392 but ultimately unable to sustain any gains. The currency’s performance was marred by the strengthening of the US Dollar, as market expectations regarding the Federal Reserve’s (Fed) future actions took center stage.
Anticipation is rife that the Fed will adopt a hawkish approach following its recent interest rate cut on Wednesday. This shift in sentiment has been bolstered by a combination of factors. The US Bureau of Labor Statistics’ report on Thursday showed Initial Jobless Claims at 242K, surpassing the forecasted 220K, hinting at a potential softening in the labor market. However, the November Producer Price Index (PPI) figures told a different story, with a 3% year-on-year increase and a core PPI of 3.4%, both exceeding expectations and pointing to persistent inflationary pressures.
The mixed US data initially led to speculation of further Fed easing, yet the US Dollar Index remained steady near 106.79. In contrast, the Australian employment data painted a relatively positive picture, with 35.6K jobs added and the unemployment rate dropping to 3.9%. This led traders to reevaluate the Reserve Bank of Australia’s (RBA) policy stance, with the odds of a February rate cut decreasing from 70% to 50%. Despite this, the RBA maintains a dovish tone, expressing confidence in the inflation rate trending towards its target.
Fed Chair Jerome Powell’s remarks about the resilience of the US economy have also dampened hopes for a more favorable year-end scenario. The sticky PPI figures have further solidified the market’s belief that the Fed will exhibit a hawkish tilt in its upcoming meeting.
From a technical perspective, the Australian Dollar is showing signs of strain. The Relative Strength Index (RSI) is hovering at 34, nearing oversold territory and indicating a mild downward trend. The Moving Average Convergence Divergence (MACD) histogram is displaying decreasing green bars, strengthening the bearish outlook. However, if the oversold conditions intensify, there could potentially be a corrective upward movement in the AUD/USD pair. As the market awaits further clarity on the Fed’s policy direction, the Australian Dollar remains under pressure, with its future movements closely tied to the actions and statements of the central banks on both sides of the Pacific.
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