The Australian Dollar (AUD) ended its three-day losing streak on Wednesday, supported by a subdued US Dollar (USD) and the Reserve Bank of Australia‘s (RBA) hawkish outlook on interest rates. This recovery comes as traders await key US economic data, including the Personal Consumption Expenditure (PCE) Price Index and the quarterly Gross Domestic Product (GDP) figures, to be released during the North American session.
Australia’s Inflation Steadies Within RBA Target
Australia’s Consumer Price Index (CPI) rose by 2.1% year-over-year in October, matching September’s figures but falling short of market expectations of 2.3%. This marks the lowest inflation rate since July 2021 and the third consecutive month within the RBA’s target range of 2–3%. Despite the subdued inflation data, expectations for future RBA rate cuts have been pushed back, with major Australian banks now forecasting the first cut in May 2024 rather than earlier in the year.
Trade Concerns Weigh on AUD
The AUD’s gains are tempered by fears of a US-China trade conflict reigniting after President-elect Donald Trump proposed a 10% tariff increase on all Chinese goods. As close trading partners, Australia’s economy remains sensitive to any slowdown in China. China’s Ambassador to Australia underscored the importance of US-China dialogue to mitigate the broader economic impacts of US trade policies.
Broader Market Context
US Dollar Trends: The USD remains under pressure amid cautious optimism in bond markets. Investors are weighing Federal Reserve signals of slower rate cuts, supported by resilient economic data, including rising consumer confidence and strong PMI figures.
Federal Reserve Outlook: Recent Federal Open Market Committee (FOMC) minutes highlighted caution regarding further rate cuts.
Futures markets suggest a 57.7% probability of a 25-basis-point rate cut in December, according to CME’s FedWatch Tool.
Technical Outlook: Resistance and Support Levels
The AUD/USD pair trades near 0.6470, with technical indicators reflecting mixed sentiment:
Support Levels: Key support lies at 0.6434, the four-month low recorded on November 26. A breach could push the pair toward the yearly low of 0.6348, with further support at 0.6320.
Resistance Levels: Resistance is noted at the nine-day Exponential Moving Average (EMA) at 0.6495 and the 14-day EMA at 0.6512. Breaking above these levels could drive the pair toward the 0.6550 mark, with a potential test of its four-week high at 0.6687.
Looking Ahead
While the RBA’s hawkish stance provides a tailwind for the AUD, external factors, including US-China trade tensions and US economic data, are likely to drive short-term movements. For now, traders remain cautious, navigating a complex interplay of domestic and global factors influencing the AUD/USD pair.
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