The Australian Dollar (AUD) gained ground against the US Dollar (USD) on Friday, bolstered by encouraging economic data from China. China’s economy grew by 5.4% year-on-year in the fourth quarter of 2024, surpassing market expectations of 5%. This followed a 4.6% expansion in the previous quarter.
In addition to strong GDP figures, China reported a 1.6% quarter-on-quarter rise in GDP for Q4, matching forecasts. Retail Sales for December rose by 3.7%, beating the anticipated 3.5%, while Industrial Production grew by 6.2%, surpassing the expected 5.4%. This positive data provided a lift to the Australian Dollar, which is closely tied to China’s economic performance.
Australia’s Unemployment Data Shows Strong Employment Growth
Australia’s seasonally adjusted unemployment rate ticked up slightly to 4.0% in December, from 3.9% in November, in line with market expectations. However, employment increased by a significant 56,300 in December, well above the expected 15,000. This marked a notable improvement from November’s revised figure of 28,200, signaling a robust labor market.
Bjorn Jarvis, head of labor statistics at the Australian Bureau of Statistics (ABS), noted that the employment-to-population ratio reached a record high of 64.5%, reflecting a solid labor market despite the increase in the unemployment rate.
US Dollar Weakens Amid Disappointing Retail Sales
The US Dollar Index (DXY), which tracks the USD against six major currencies, traded near 109.00, weakening following disappointing US Retail Sales data. Retail Sales for December rose by just 0.4%, below the expected 0.6% and down from the previous month’s revised 0.8% increase.
Additional US economic data showed a mixed picture. The Consumer Price Index (CPI) rose 2.9% year-over-year in December, slightly higher than November’s 2.7%, but in line with expectations. The Core CPI, excluding food and energy, increased by 3.2% annually, below forecasts of 3.3%. Meanwhile, the Producer Price Index (PPI) showed a softer-than-expected 0.2% increase in December, further dampening the dollar’s appeal.
Federal Reserve officials, including Chicago Fed President Austan Goolsbee, have expressed increasing confidence in the labor market, signaling a shift towards stabilizing conditions. The Fed’s Beige Book also highlighted moderate growth across the US economy, though manufacturing activity saw a slight decline due to inventory buildup in anticipation of higher tariffs.
Australia’s Economic Outlook Shows Consumer Pessimism
Despite the positive labor data, Australia’s Westpac Consumer Confidence Index dropped by 0.7% to 92.1 points, reflecting ongoing concerns about the economic outlook. With consumer confidence waning, market expectations are building that the Reserve Bank of Australia (RBA) may cut interest rates by 25 basis points in February, with a full rate cut possible by April.
Technical Outlook for AUD/USD
The AUD/USD pair trades near 0.6220 on Friday, attempting to break above a descending channel on the daily chart. A successful breakout could signal a shift in the prevailing bearish trend. The 14-day Relative Strength Index (RSI) is trending upwards, approaching the neutral 50 level, indicating potential recovery momentum for the Australian Dollar.
Immediate resistance is seen at 0.6220, near the upper boundary of the descending channel. On the downside, support is at the 14-day Exponential Moving Average (EMA) around 0.6213, followed by the nine-day EMA at 0.6206. Stronger support lies further down at the lower boundary of the descending channel, around 0.5920.
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