The Australian Dollar (AUD) experienced a second consecutive day of decline on Thursday, influenced by multiple factors impacting the currency markets. The AUD/USD pair faced downward pressure following positive S&P Global Purchasing Managers Index (PMI) data from the United States, leading to reduced expectations of a March rate cut by the Federal Reserve (Fed). Additionally, China’s People’s Bank of China (PBoC) actions and US Dollar (USD) dynamics contributed to the AUD’s movement.
Factors Influencing AUD/USD Movement
US PMI Data and Fed Rate Cut Expectations:
Positive S&P Global PMI data from the US on Wednesday reduced expectations of a March rate cut by the Fed, impacting the AUD/USD pair negatively.
According to CME’s FedWatch tool, market-wide bets on a March rate cut have significantly dropped to below 40%, a considerable decline from approximately 80% recorded a month earlier.
RBA‘s Bulletin on Price Growth and Business Expectations:
Despite improved preliminary PMI data from Australia, the RBA’s Bulletin indicates that businesses anticipate a moderation in price growth, with expectations that prices will stay above the RBA’s inflation target range of 2.0–3.0%.
Slower growth in demand and increased competition are expected factors contributing to a deceleration in firms’ price growth in the upcoming quarters.
PBoC’s Potential MLF Rate Cut:
Chinese financial media reported the potential for the PBoC to cut the Medium-term Lending Facility (MLF) rate in the current quarter.
The recent 50 basis points reduction in the Required Reserve Ratio (RRR) by the PBoC is aimed at injecting liquidity into the economy, releasing approximately CNY 1 trillion of extra funds.
US Dollar Index (DXY) Dynamics:
The US Dollar Index (DXY) attempts to recover from recent losses despite downbeat US Treasury yields.
The USD faces challenges due to a risk-on market sentiment ahead of the Federal Reserve’s (Fed) interest rate decision on January 31.
Technical Analysis of AUD/USD:
The AUD/USD trades around 0.6570 with immediate resistance at the psychological level of 0.6600, followed by the 23.6% Fibonacci retracement level at 0.6606 and the 14-day Exponential Moving Average (EMA) at 0.6617.
A move above this resistance zone could propel the pair toward 0.6650. On the downside, the pair might revisit the weekly low at 0.6551, coinciding with the significant level at 0.6550, and breach could lead to further downside pressure, testing the monthly low at 0.6524.
Conclusion:
The Australian Dollar faces challenges from a mix of domestic and international factors, with US data and China’s PBoC actions playing a significant role. Traders are closely monitoring these dynamics, and the AUD/USD pair remains susceptible to shifts in market sentiment and economic indicators.
