The Australian Dollar (AUD) continued its decline on Monday, marking a fifth consecutive day of losses against the US Dollar (USD), trading at its lowest levels since April 2020. The currency is facing mounting downward pressure as market expectations increase for a 75% probability of a rate cut by the Reserve Bank of Australia (RBA) in the coming month. Investors are now awaiting Australian employment data, scheduled for release later this week, which could provide further insights into the RBA’s policy trajectory.
Earlier in the day, the AUD briefly strengthened following the release of the TD-MI Inflation Gauge for December, which showed a 0.6% month-over-month increase, significantly up from November’s 0.2% gain. This marked the highest inflation reading since December 2023, although the annual inflation rate dipped to 2.6%, down from the previous 2.9%.
Additionally, the AUD found some support from China’s recent economic measures. Given the close trade relations between Australia and China, any changes in China’s economic outlook could have a significant impact on Australian markets. On Monday, the China Foreign Exchange Committee (CFXC) pledged support for the Chinese Yuan in a meeting in Beijing, while the People’s Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) raised the macro-prudential adjustment parameter for cross-border financing to 1.75, effective January 13, 2025.
China’s trade surplus reached $104.84 billion in December, surpassing expectations and marking a notable increase from the previous month’s $97.44 billion. Exports grew by 10.7% year-over-year, exceeding forecasts, while imports rose by 1%, against expectations for a decline.
Meanwhile, the US Dollar (USD) strengthened as the US Dollar Index (DXY) surged towards 110.00, nearly matching its highest level since November 2022. This strength follows strong US labor market data for December, which has bolstered expectations that the US Federal Reserve will maintain its current interest rate policy. Friday’s jobs report revealed a substantial increase in Nonfarm Payrolls (NFP), with 256K jobs added in December, far surpassing market predictions of 160K. The unemployment rate also edged lower to 4.1%.
As US economic data continues to support the Federal Reserve’s stance, yields on US Treasury bonds have risen sharply, with the 2-year and 10-year yields standing at 4.38% and 4.76%, respectively. The latest FOMC Meeting Minutes suggest that the Fed’s policy adjustment process may take longer than expected due to persistently high inflation readings.
In Australia, the labor market shows resilience despite high interest rates. The ANZ Job Advertisements index rose by 0.3% month-over-month in December, signaling ongoing strength. Australia’s November Consumer Price Index (CPI) showed a 2.3% annual increase, surpassing forecasts and remaining within the RBA’s 2-3% target range for the fourth consecutive month.
As for the AUD/USD pair, it continues to trade around the 0.6160 mark on Monday, maintaining a bearish outlook amid a descending channel on the daily chart. The 14-day Relative Strength Index (RSI) sits at 30, indicating the pair may be oversold and due for a potential corrective rebound. Immediate resistance lies at 0.6196, while further resistance is found near 0.6230. The lower boundary of the descending channel at 0.5950 could serve as key support.
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