The Australian Dollar (AUD) extended its losses against the US Dollar (USD) for the second consecutive session on Wednesday, as traders brace for a potential 25 basis point rate cut by the US Federal Reserve later in the day. Meanwhile, the AUD faces additional pressure from rising expectations that the Reserve Bank of Australia (RBA) could cut interest rates sooner and more aggressively than previously anticipated.
US Federal Reserve Decision in Focus
The US Dollar remains supported by market caution ahead of the Federal Reserve’s December meeting. According to the CME FedWatch tool, markets are nearly fully pricing in a quarter-point rate cut, which would bring the Fed‘s target range to 4.25%-4.50%. Attention will also shift to the Fed’s updated economic projections and the dot plot, which could provide insights into future rate decisions. Traders will be closely monitoring any comments from Fed Chair Jerome Powell during his press conference following the meeting, looking for signs of a more cautious approach to future rate reductions.
RBA Rate Cut Expectations Weigh on AUD
In Australia, the outlook for interest rates is increasingly dovish. Traders are now betting that the RBA could reduce rates sooner and by more than initially expected, with a growing consensus that the first rate cut could come as early as May 2025, though some analysts see a potential move in February. National Australia Bank (NAB) projects that the Australian unemployment rate will peak at 4.3% before easing to 4.2% by 2026, as the economy stabilizes. Meanwhile, NAB expects trimmed mean inflation to moderate, with a 0.6% quarterly rise in Q4, reaching 2.7% by late 2025.
Weak Economic Data and Declining Consumer Confidence
The AUD is also being weighed down by weak domestic data. Australia’s Westpac Consumer Confidence Index fell by 2% to 92.8 points in December, reversing the positive momentum seen in the previous two months. Additionally, traders are awaiting US retail sales data later in the North American session, which could influence broader market sentiment.
China’s Economic Slowdown Adds Pressure
Further complicating the outlook for the AUD is the soft economic performance in China, Australia’s largest trading partner. Reuters reported that China plans to target 5% economic growth for 2025, maintaining the same growth target as this year. However, a lack of concrete details on fiscal support has weighed on investor sentiment. China’s retail sales for November rose by just 3.0%, well below the expected 4.6% increase, while industrial production grew by 5.4%, exceeding expectations.
AUD/USD Technical Outlook: Bearish Bias Prevails
The AUD/USD pair is trading near 0.6330 on Wednesday, having broken below its yearly low of 0.6348. The pair remains confined within a descending channel pattern on the daily chart, suggesting a prevailing bearish bias. The 14-day Relative Strength Index (RSI) is hovering slightly above the 30 mark, indicating sustained bearish momentum. A drop below the 30 level could signal an oversold condition and a potential for a short-term upward correction.
On the downside, the next support level for AUD/USD is seen around the lower boundary of the descending channel, near 0.6150. On the upside, initial resistance is likely to come at the nine-day Exponential Moving Average (EMA) at 0.6373, followed by the 14-day EMA at 0.6397. A breakout above the channel’s upper boundary could open the door for a move towards the eight-week high of 0.6687.
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- What Time is the RBA Interest Rate Decision?
- Will the RBA Drop Rates? An In-Depth Analysis
- RBA vs Bank Account: What’s the Difference?
