The Australian Dollar (AUD) is on a winning streak, extending gains for the third consecutive session on Friday, buoyed by the possibility of a downward trajectory for the US Dollar (USD). Federal Reserve (Fed) Chair Jerome Powell, in his second day of testimony before the US Congress, reiterated the central bank‘s stance, hinting at potential cuts in borrowing costs later in the year contingent on inflation aligning with the Fed’s 2% target.
The positive momentum in the Australian Dollar is further fueled by improved market sentiment, driven by a surge in equity markets globally. The S&P/ASX 200 Index has reached new record highs, following a tech-led rally on Wall Street, with expectations of major central banks implementing interest rate cuts in 2024, boosting market confidence.
Despite concerns about the Australian economy’s fourth-quarter expansion falling short of expectations and the Trade Balance surplus not meeting projections, the Australian market remains resilient. Economic indicators prompt speculation about potential rate cuts by the Reserve Bank of Australia (RBA) in August, with a total easing of 45 basis points anticipated for the year.
Market Movers – Australian Dollar Aims for Gains on Positive Sentiment
In economic news, Australian Trade Balance (MoM) for February showed a surplus increase to 11,027M, slightly below market expectations. Aussie Imports (MoM) rose by 1.3%, and Monthly Exports grew by 1.6%, exceeding previous figures. Australian Gross Domestic Product (GDP) for Q4 2023 grew by 0.2% QoQ, slightly below market expectations.
Additional economic indicators include the AiG Industry Index, Judo Bank Services PMI, and Australian Current Account Balance, which have shown mixed results.
Commerzbank economists anticipate the RBA delaying rate cuts, providing temporary support for the Australian Dollar. However, they acknowledge the potential for adjustments if clear indications of an economic slowdown emerge.
Chinese Trade Balance and Global Economic Outlook
Chinese Trade Balance USD for February exceeded expectations, providing positive momentum globally. Cleveland Fed President Loretta Mester expressed concerns about persistent inflation, hinting at possible rate cuts later in the year if economic forecasts align.
Former New York Fed economist Steven Friedman suggested cautiousness among Federal Reserve policymakers regarding interest rate cuts in 2024, anticipating fewer cuts than initially projected.
The CME FedWatch Tool indicates a 5.0% probability of a 25 basis points rate cut in March, with higher probabilities for cuts in May and June.
US Economic Indicators
US economic indicators show mixed results, with unchanged Initial Jobless Claims, consistent Nonfarm Productivity growth, and February’s ADP Employment Change slightly below expectations. January’s JOLTS Job Openings and ISM Services PMI fell short of market expectations, while Factory Orders (MoM) exceeded the expected fall.
Technical Analysis: Australian Dollar’s Path Ahead
The Australian Dollar, currently trading around 0.6620, faces key resistance near 0.6650 and a psychological barrier at 0.6700. On the downside, support levels include 0.6600, followed by the 23.6% Fibonacci retracement level of 0.6585. A break below the latter could lead to a test of the nine-day Exponential Moving Average (EMA) at 0.6560 and the major support at 0.6550.
