In a recent shift of market dynamics, the Australian Dollar (AUD) rebounded against the US Dollar (USD) on Tuesday, recovering from recent losses. The Reserve Bank of Australia (RBA) held its Official Cash Rate (OCR) steady at 4.35% in February, meeting expectations and contributing to the AUD’s resurgence. However, the AUD/USD pair faced headwinds from hawkish remarks by Federal Reserve (Fed) Chair Jerome Powell and a decline in commodity prices.
The Australian Bureau of Statistics released positive Retail Sales (QoQ) data, indicating a 0.3% rise in the fourth quarter compared to the previous growth of 0.2%. Despite these positive indicators, the Australian economy grapples with a cost-of-living crisis, limiting the RBA’s room to further raise interest rates. Attention now turns to when the central bank might consider reducing interest rates, with investors closely watching RBA Governor Michele Bullock’s upcoming speech for insights into the monetary policy outlook.
RBA Governor Michele Bullock, in a post-interest rate decision press conference, emphasized the bank’s openness to various policy decisions. She underscored the balanced perception of risks and the active pursuit of data confirming a return of inflation to the target level. Governor Bullock acknowledged the potential narrow path to achieving the inflation goal and cited a 2.8% inflation forecast for 2025.
The US Dollar Index (DXY) surged on the back of the Federal Reserve’s hawkish stance, driven by robust ISM Services data for January. The ISM Services PMI exceeded expectations, reaching 53.4, with the Employment Index also improving. Powell’s comments on monitoring inflation’s movement toward the 2% core target boosted US Treasury yields, placing downward pressure on the AUD/USD pair.
Market Movers: Australian Dollar Faces Challenges from Fed’s Hawkish Stance
In the daily digest of market movers, the Australian Trade Balance for January decreased to $10,959M from December’s revised figure of $11,764M. Australia’s Judo Bank Composite Purchasing Managers Index (PMI) showed improvement, reaching 49 in January, while the Services PMI rose to 49.1. Aussie TD Securities Inflation (YoY) grew by 4.6%, lower than the previous 5.2%, and TD Securities Inflation (MoM) in January increased by 0.3%, down from December’s 1.0% rise. Chinese Caixin Services PMI reduced to 52.7 in January.
In the US, ISM Services Prices Paid rose to 64.0 in January, and the Services New Orders Index improved to 55.0. The S&P Global Composite PMI came in at 52.0, slightly lower than the previous 52.3.
Technical Analysis: Australian Dollar Eyes Psychological Level of 0.6500
Technically, the Australian Dollar traded around 0.6490, positioning itself below the resistance level of 0.6500. A potential breach above this level may trigger a test of the resistance zone near 0.6550. Further upward movement could encounter the 23.6% Fibonacci retracement level at 0.6563, reaching the 21-day Exponential Moving Average at 0.6587. On the downside, immediate support is expected at the psychological level of 0.6450, followed by another psychological support at 0.6400.
