The Australian Dollar (AUD) is on a path to extend its recent gains for the second consecutive session, exhibiting bullish momentum that is contributing to a noteworthy upswing in the AUD/USD pair. Surprisingly, the Australian Dollar remains robust even in the face of an improved US Dollar (USD) and lower US Treasury yields. It’s noteworthy that the current volatility is expected to subside temporarily due to the closure of financial markets in observance of the Australia Day Holiday.
One of the driving factors behind the Australian Dollar’s positive performance is its favorable response to the strong showings of copper and iron. Additionally, reports of additional stimulus measures by the People’s Bank of China (PBoC) have likely provided further support. Despite this, the Reserve Bank of Australia (RBA) is anticipated to implement interest rate reductions later this year, with potential delays linked to adjustments in the stage three tax cut package.
According to the Reserve Bank of Australia’s (RBA) Bulletin, businesses have generally anticipated a slowdown in price growth over the past six months. The prevailing expectation is that prices will, on average, remain above the RBA’s inflation target range of 2.0–3.0%.
The US Dollar Index (DXY) is poised to capitalize on recent gains following firmer-than-expected US GDP figures, indicating the resilience of the United States (US) economy. US Treasury Secretary Janet Louise Yellen, in response to the strong Q4 GDP data, expressed optimism, attributing the robust performance to healthy spending and productivity improvements. Yellen emphasized that the GDP report does not pose a threat to the prospect of a ‘soft landing’ scenario for the US economy.
Traders are closely watching the upcoming Personal Consumption Expenditures (PCE) Price Index data, set to be released after the GDP report. This data will provide insights into monthly changes in both Personal Spending and Personal Income.
In economic news, Australia’s Manufacturing PMI and Services PMI have shown improvement, with the Composite PMI also experiencing an uptick. However, Australia’s Westpac Leading Index declined in December, and National Australia Bank’s Business Conditions saw a slight decrease while Business Confidence improved.
As Australia’s sovereign wealth fund chair, Peter Costello, notes signs of inflation moderation in Australia, Chinese financial media reports suggest the People’s Bank of China (PBoC) may cut the Medium-term Lending Facility (MLF) rate in the current quarter.
In the United States, positive indicators include a surprising reduction in Initial Jobless Claims, a climb in S&P Global Manufacturing PMI to an 11-month high, and growth in Services PMI and Composite PMI.
The Australian Dollar’s technical analysis indicates a current trading level of around 0.6590, facing resistance at 0.6600. A breakthrough above this level could propel the AUD/USD pair towards 0.6650, while downside risks include revisiting support at 0.6550 and potentially testing the monthly low at 0.6524 if breached.