The Australian Dollar (AUD) maintained its upward momentum against the US Dollar (USD) on Tuesday, supported by a stable USD. The AUD/USD pair found strength as US bond yields declined in the previous session, attributed to a healthier US balance sheet. The sustained decrease in yields since October 2023 has contributed to the stability of the US Treasury, with stronger economic growth leading to improved tax receipts. The recent announcement by the US Treasury Department to borrow $760 billion in the first quarter, lower than the October estimate of $816 billion, further influenced the market dynamics.
Despite a decline of 2.7% in Australia’s seasonally adjusted Retail Sales (MoM) for December, contrasting with the expected fall of 0.9%, the Aussie Dollar displayed resilience. The unexpected strength could be linked to positive sentiments surrounding additional stimulus measures in China, driving the AUD/USD pair. Attention now turns to Wednesday’s release of the Australian Consumer Price Index (CPI) data, expected to show a 0.8% decline in the fourth quarter from the previous 1.2%.
In the US, the Dollar Index (DXY) stabilized after Monday’s losses, attributed to an improved risk-off mood. Rising risk aversion may be fueled by expectations of US military strikes in response to a recent drone attack in Jordan, resulting in casualties.
Investors are closely monitoring the Federal Open Market Committee (FOMC) statement scheduled for Wednesday, with expectations that the Fed Funds rate will remain unchanged at 5.25-5.50%. However, the prevailing market bias toward a potential rate cut in March may impact the USD. Tuesday’s releases of the Housing Price Index and Consumer Confidence figures precede the FOMC statement, providing insights into the market sentiment.
In other market developments, Australia’s Manufacturing and Services PMI showed improvement, while the Reserve Bank of Australia‘s (RBA) Bulletin indicated businesses expect a moderation in price growth. Reports from Chinese financial media suggest potential rate cuts by the People’s Bank of China (PBoC). Meanwhile, US economic data revealed a monthly increase in the Core Personal Consumption Expenditures Price Index (PCE) and a Q4 Gross Domestic Product Annualized reading of 3.3%, surpassing market consensus.
Technical analysis highlights the AUD/USD pair’s movement above the psychological level of 0.6600, encountering initial resistance at the 21-day Exponential Moving Average (EMA) at 0.6629. Further resistance lies at 0.6650, while a breakthrough could propel the pair towards 0.6700. On the downside, support is seen at 0.6600 and 0.6550, with a breach potentially leading to a retest of the monthly low at 0.6524.