The Australian Dollar (AUD) has been experiencing sideways movement with a tilt towards recovery, buoyed by a stable US Dollar (USD). However, the AUD/USD pair encounters challenges as investors exercise caution ahead of a crucial US inflation report that could influence the Federal Reserve’s monetary policy.
Australia’s S&P/ASX 200 Index demonstrated improvement on Tuesday, driven by gains in financial and gold stocks, potentially lending support to the Aussie Dollar. Sarah Hunter, Assistant Governor (Economics) at the Reserve Bank of Australia (RBA), addressed the AFR Business Summit, providing insights into the fourth-quarter GDP, noting that recent inflation data remains a hurdle for household consumption.
The US Dollar Index (DXY) remains steady, consolidating gains as markets approach the US Consumer Price Index (CPI) data with caution. An anticipated increase in the February month-over-month CPI raises concerns about a potential impediment to a near-term rate cut by the Federal Reserve, possibly creating headwinds for the AUD/USD pair.
Key Market Movements: Australian Dollar’s Response to Economic Indicators
Australia’s NAB Business Confidence Index dipped to 0 in February, contrasting with the previous month’s 1.
NAB Business Conditions Index improved to 10 from the revised reading of 7 (initially 6).
Australian Trade Balance (MoM) showed a surplus increase to 11,027M in February, slightly below market expectations of 11,500M.
Australian Gross Domestic Product (GDP) grew by 0.2% QoQ in Q4 2023, slightly below market expectations.
Treasurer Jim Chalmers announced the abolition of nearly 500 import tariffs, aiming to streamline trade and reduce compliance costs.
China’s Consumer Price Index (CPI) rebounded in February, surpassing expectations, while Producer Price Index (PPI) dropped more than anticipated.
Federal Reserve Chair Jerome Powell hinted at potential rate cuts this year, contingent on the inflation trajectory aligning with the Fed‘s target of 2%.
Cleveland Fed President Loretta Mester expressed concerns about persistent inflation, suggesting the possibility of rate cuts later in the year.
US Economic Indicators: Impact on Rate Cut Probability
The probability of a rate cut in March and May decreased slightly, standing at 3.0% and 24.5%, respectively.
The likelihood of a 25 basis points rate cut increased to 57.2% for June.
Technical Analysis: Australian Dollar’s Support and Resistance Levels
The Australian Dollar trades around 0.6610, with immediate support at the psychological level of 0.6600. A breach below this level could lead to a test of the 38.2% Fibonacci retracement level at 0.6581, aligned with the nine-day Exponential Moving Average (EMA) at 0.6580. On the upside, key resistance lies at 0.6650, followed by the previous week’s high of 0.6667. A breakthrough above 0.6667 could pave the way for testing the psychological barrier at 0.6700.
