The Australian Dollar (AUD) initiated the week with a four-day winning streak on Monday, bolstered by various market factors. The US Dollar (USD) received support from Friday’s release of better-than-expected Producer Price Index (PPI) data in the United States. However, the gains were tempered by dovish comments from former St. Louis Federal Reserve (Fed) president, James Bullard, resulting in an upswing for the AUD/USD pair.
Adding to the Australian Dollar’s positive momentum was the S&P/ASX 200 index reaching an all-time high, driven by increased mining stocks amid robust metals prices. Market sentiment was further uplifted by the prevailing belief that the Reserve Bank of Australia (RBA) would maintain its current monetary policy stance throughout 2024. This optimism stems from Westpac’s expectations of a resilient Australian economy, supported by low unemployment and healthy corporate sector balance sheets. Westpac anticipates a less restrictive approach by the RBA in 2025.
The US Dollar Index (DXY) extended its decline as US Treasury yields retraced their daily advances on Friday. With US banks closed for the Presidents’ Day holiday, limited movement in the US Dollar is anticipated.
In market developments, Reserve Bank of Australia Governor Michele Bullock, addressing the Australian parliament’s Senate Economics Legislation Committee, noted the global economy’s better-than-anticipated performance. She expressed confidence in the current economic position, suggesting a favorable outlook for bringing inflation down within a reasonable timeframe.
Premier of the People’s Republic of China, Li Qiang, emphasized the importance of consistent and stable policies, while the People’s Bank of China (PBoC) maintained its Medium-term Lending Facility (MLF) rate at 2.5%.
At the National Association for Business Economics (NABE) conference, former Fed official James Bullard suggested the Federal Reserve consider lowering interest rates in March to avoid dampening economic activity.
On the economic front, the preliminary Michigan Consumer Sentiment Index improved to 79.6, and the US Core Producer Price Index exceeded expectations at 2% YoY in January.
Despite these mixed factors, the Australian Dollar remains positioned near the support level of 0.6550 in technical analysis. A break below this level could push the AUD/USD pair toward the nine-day Exponential Moving Average (EMA) at 0.6523, followed by the psychological support level of 0.6500. Conversely, an upside movement may encounter resistance around the psychological level of 0.6600, with further resistance at the 38.2% Fibonacci retracement level of 0.6606.
