The Australian Dollar (AUD) continues its impressive rally, securing gains for the sixth consecutive session on Wednesday. The momentum is attributed to the release of the Reserve Bank of Australia‘s (RBA) meeting minutes, which have altered market sentiment, hinting at the probability of no imminent rate cuts. Additionally, the weakening of the US Dollar (USD) has further buoyed the AUD/USD pair, possibly influenced by subdued US Treasury yields preceding the Federal Open Market Committee (FOMC) Minutes scheduled for Wednesday.
Despite this positive trend, the Australian Dollar may face challenges from a weakening Aussie money market, as the S&P/ASX 200 Index experiences a second consecutive session decline, mirroring losses on Wall Street. This decline is linked to subdued mining stocks and metals prices. However, the mixed Wage Price Index data for the fourth quarter released by the Australian Bureau of Statistics does not seem to significantly impact the Australian Dollar (AUD).
The US Dollar Index (DXY) encounters downward pressure as market expectations lean towards no further rate hikes by the Federal Reserve in upcoming meetings. According to the CME FedWatch Tool, the likelihood of a Fed cut has notably decreased to 8.5% and 30.7% for March and May, respectively. The market is now projecting the initiation of easing to commence in June, with a probability of 54.3%.
In the financial landscape, the Australian Wage Price Index (QoQ) grew by 0.9% in the fourth quarter as expected, slightly lower than the previous rise of 1.3%. The index rose by 4.2% year-over-year, surpassing the market expectation of remaining unchanged at 4.1%. The Westpac Leading Index (MoM) declined by 0.1% in January compared to the previous reading of flat 0.0%. Meanwhile, the ANZ-Roy Morgan Consumer Confidence improved to 82.8 this week from 82.6 prior, marking a record 55 consecutive weeks below the 85-mark.
RBA’s Meeting Minutes unveiled discussions on the potential for a 25-basis point rate hike or maintaining the status quo. While recent data indicated a return to target inflation within a reasonable timeframe, the Board acknowledged the process would take time, leading to a decision not to rule out another rate hike.
The People’s Bank of China (PBoC) implemented a historic 25-basis point reduction in the five-year Loan Prime Rate (LPR), aimed at bolstering the housing market. Analysts, however, suggest the overall impact on stimulating the economy may be marginal.
Looking ahead, ANZ anticipates that the Federal Reserve (Fed) will commence rate cuts from July 2024. The Federal Reserve’s dot plot for this year indicates an expectation of 75 basis points in rate cuts, while the Fed funds futures market is pricing in approximately 89 basis points in cuts.
In the auction market, 3-Month and 6-Month US Bills were auctioned at 5.23% and 5.1%, respectively.
In the technical realm, the Australian Dollar hovers around the major level of 0.6550 on Wednesday. A break below this major level could find immediate support around the 14-day Exponential Moving Average (EMA) at 0.6535, followed by the psychological support level of 0.6500. On the upside, the AUD/USD pair could retest the three-week high at 0.6579, followed by the resistance zone around the psychological level of 0.6600 and the 38.2% Fibonacci retracement level of 0.6606.
