The Australian Dollar (AUD) continued its positive trajectory on Friday, propelled by a surge in the S&P/ASX 200 Index to unprecedented heights, coupled with overnight gains on Wall Street. However, the AUD/USD pair experienced a retracement on Thursday as the US Dollar (USD) strengthened following the release of the US Federal Reserve’s preferred inflation gauge, the US Personal Consumption Expenditures – Price Index, meeting market expectations.
Boosting the Australian Dollar’s performance, Australia’s Retail Sales and Private Capital Expenditure data were released on Thursday. The Judo Bank Manufacturing PMI indicated a marginal improvement in Australia’s manufacturing sector, with the February reading rising to 47.8 from the previous period’s 47.7.
Despite an uptick in US Treasury yields, the US Dollar Index (DXY) edged lower due to delayed expectations for the Federal Reserve’s first rate cut, influenced by recent United States (US) Gross Domestic Product (GDP) data. Investor focus now shifts to the final US S&P Global Manufacturing PMI for February, scheduled for release on Friday.
Market Highlights: Australian Dollar Reacts to Economic Indicators
The seasonally adjusted Australian Retail Sales (MoM) increased by 1.1% in January, below the expected 1.5%, but marking a positive reversal from the previous month’s decline of 2.7%.
Australian Private Capital Expenditure showed improvement, growing by 0.8% in the fourth quarter of 2023, surpassing the expected 0.5% and the prior 0.6%.
Australia’s Monthly Consumer Price Index (CPI) remained unchanged at 3.4% for January, slightly below the market’s 3.5% expectations.
Expert Opinions and Global Economic Insights
Warren Hogan, Chief Economist Advisor at Judo Bank, expressed concerns about Australia’s manufacturing sector, questioning the prospect of a post-pandemic manufacturing revival.
Chinese Manufacturing PMI met expectations at 49.1 in February, with a slight decline from the previous reading of 49.2. Non-manufacturing PMI improved to 51.4, surpassing the expected 50.8.
US Economic Landscape and Federal Reserve Perspectives
Atlanta Fed President Raphael W. Bostic noted challenges in achieving the central bank‘s 2% inflation target.
Chicago Fed President Austan Dean Goolsbee anticipated first-rate cuts later in the year without specifying a timeline.
New York Federal Reserve President John Williams stated that while there is progress toward the 2% inflation target, the possibility of interest rate cuts this year remains contingent upon incoming data.
Probability of Rate Cuts and Economic Indicators in the US
According to the CME FedWatch Tool, the probability of rate cuts in March is at 3.0%, with estimates rising to 23.1% in May and 52.2% in June.
Key US Economic Indicators
US Personal Consumption Expenditure (PCE) Price Index grew by 2.4% YoY in January, meeting expectations.
US Core PCE (YoY) rose by 2.8%, matching consensus.
Preliminary US Gross Domestic Product Annualized grew by 3.2% in the fourth quarter of 2023, slightly below market expectations.
Preliminary US Gross Domestic Product Price Index (Q4) increased by 1.7% against expectations.
US Housing Price Index (MoM) increased by 0.1% in December, falling short of expectations.
Technical Analysis: Australian Dollar Facing Key Levels
The Australian Dollar is currently hovering around the psychological level of 0.6500. A breach below this level could trigger a downward move in the AUD/USD pair, targeting the major support level of 0.6450 and February’s low at 0.6442. On the upside, immediate resistance is observed around the 14-day Exponential Moving Average (EMA) at 0.6526, followed by the 23.6% Fibonacci retracement level at 0.6543 and the major level of 0.6550. A break above this resistance zone may signal a potential approach to the psychological level of 0.6600.
