In the wake of disappointing economic data and a hawkish stance from the Federal Reserve (Fed), the Australian Dollar (AUD) has continued its descent against the US Dollar (USD). The AUD/USD pair witnessed a decline following Fed Chairman Jerome Powell’s announcement, where he dismissed the possibility of a rate cut in the upcoming March meeting, citing persistent inflation and robust economic activity.
Downward pressure on Australia’s Dollar is exacerbated by bond traders adjusting their expectations for early interest rate cuts by the Reserve Bank of Australia (RBA), triggered by an unexpectedly weak quarterly inflation report. Despite this, the RBA is expected to maintain the cash rate at 4.35% during its February meeting. However, future markets are already pricing in two quarter-point reductions in 2024, with the first expected in August.
National Australia Bank’s Business Confidence (QoQ) reported a decrease to -6 in the fourth quarter, coupled with Building Permits (MoM) declining by 9.5% against an expected growth of 1.1% in December. Meanwhile, the Chinese Caixin Manufacturing PMI for January remained steady at 50.8, surpassing the expected 50.6 reading.
The US Dollar Index (DXY) faced initial losses due to disappointing US employment figures but rebounded after Powell’s hawkish comments. The rise in US Treasury yields, along with increased risk aversion from Middle East tensions, poses a challenge for the AUD/USD pair.
In the realm of economic indicators, Australia’s Monthly Consumer Price Index (CPI) for December recorded a year-on-year increase of 3.4%, down from November’s 4.3%. RBA Trimmed Mean CPI (YoY) for the fourth quarter stood at 4.2%, lower than the expected 4.3%. Additionally, Australian CPI (QoQ) came in at 0.6%, softer than the anticipated 0.8%.
Technical analysis reveals the Australian Dollar trading around 0.6570, slightly above the weekly low of 0.6551. A breach of this support may prompt a retest of January’s low at 0.6524. On the upside, initial resistance is seen at the psychological level of 0.6600, followed by the 23.6% Fibonacci retracement level at 0.6606, and the 21-day Exponential Moving Average (EMA) at 0.6617, with a crucial resistance level at 0.6650.
