The Australian Dollar (AUD) pauses its four-day losing streak against the US Dollar (USD) on Monday, finding some support near its lowest level since April 2020. The AUD/USD pair has managed a modest recovery, aided by China’s recent stimulus measures. Given Australia’s close economic ties with China, changes in China’s economic landscape have significant implications for Australian markets.
China’s Economic Measures and Trade Data Support the AUD On Monday, the China Foreign Exchange Committee (CFXC) met in Beijing under the guidance of the People’s Bank of China (PBOC), pledging support for the Chinese Yuan. The PBOC also announced an increase in the macro-prudential adjustment parameter for cross-border financing, effective from January 13, 2025. Additionally, China’s trade surplus expanded in December, surpassing expectations with a $104.84 billion surplus. Exports rose by 10.7% year-over-year, exceeding forecasts, while imports increased by 1%, above the expected decline.
Inflation Data Provides Some Boost The AUD also found some support from domestic data, with the TD-MI Inflation Gauge climbing by 0.6% month-over-month in December, marking a significant acceleration compared to the previous month’s 0.2% increase. On an annual basis, the Inflation Gauge rose by 2.6%, slightly down from the prior 2.9%. This inflation data provides hope for the Australian economy and gives the AUD a brief reprieve.
Hawkish Fed Outlook Weighs on the AUD Despite this, the AUD faces ongoing downward pressure, with the markets pricing in a 75% chance of a rate cut by the Reserve Bank of Australia (RBA) next month. Investors are awaiting Australian employment data, set to be released later this week, for additional insights into the RBA’s policy stance. Meanwhile, the US Dollar remains strong, bolstered by robust US jobs data and hawkish expectations surrounding the Federal Reserve’s (Fed) policy outlook. The USD’s strength is further supported by the recent surge in US Treasury yields, with the 2-year and 10-year yields rising to 4.38% and 4.76%, respectively.
Technical Outlook for AUD/USD The AUD/USD pair continues to trade around the 0.6160 level, maintaining a bearish outlook within a descending channel on the daily chart. The 14-day Relative Strength Index (RSI) is at the oversold level of 30, suggesting a potential for upward correction. Immediate support is near the lower boundary of the descending channel, around the 0.5950 level, while resistance lies at the 9-day Exponential Moving Average (EMA) at 0.6196, followed by the 14-day EMA at 0.6214. A stronger resistance is found at the upper boundary of the channel near 0.6230.
In summary, while the AUD has managed a brief recovery, downward pressure persists from a hawkish Fed, concerns about the Reserve Bank of Australia’s next steps, and ongoing geopolitical uncertainties.
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