The Australian Dollar (AUD) extends its winning streak for the third consecutive session on Friday, buoyed by hawkish remarks from Reserve Bank of Australia (RBA) Governor Michele Bullock. However, the AUD/USD pair faces potential headwinds, as the United States is set to announce new measures on Monday to limit China’s advancement in artificial intelligence technology, which could weigh on global risk sentiment.
RBA Holds Firm on Inflation Outlook
ANZ has revised its forecast, pushing back expectations for an interest rate cut by the Reserve Bank of Australia (RBA) to May, from an earlier prediction of February. This revision comes after the central bank warned that inflation is likely to remain elevated for another two years. RBA Governor Bullock recently emphasized that Australia’s core inflation remains “too high” to consider immediate rate cuts, with inflation unlikely to sustainably return to the target range before 2026.
The RBA’s cautious stance contrasts with growing expectations in the market for global central banks to ease monetary policy. The RBA’s commitment to tackling inflation offers some support for the Australian Dollar, but with interest rates expected to remain elevated for an extended period, the outlook remains uncertain.
US Dollar Faces Limited Downside
The downside potential of the US Dollar (USD) is seen as limited, as the Federal Reserve is expected to adopt a cautious approach to rate cuts, following the release of strong inflation data on Wednesday. The report revealed solid consumer spending growth in October, though inflation showed little improvement, reinforcing the Fed‘s focus on balancing inflation and growth.
Meanwhile, US Treasury bonds rose in value after President-elect Donald Trump appointed seasoned fund manager Scott Bessent as Treasury Secretary, which markets view as a sign of fiscal conservatism.
Mixed Economic Data from Australia
Australia’s Private Sector Credit for October increased by 0.6%, surpassing market expectations of a 0.5% rise and marking the strongest monthly growth since June. On an annual basis, credit expanded by 6.1%, up from 5.8% previously. In addition, capital expenditure for the third quarter grew by 1.1%, exceeding market expectations and rebounding from a decline in the previous quarter. These positive data points offer some support to the Australian Dollar.
However, geopolitical concerns and President-elect Trump’s announcement of a 10% tariff increase on Chinese goods entering the US have dampened sentiment, weighing on the AUD.
Technical Analysis: AUD/USD Faces Downside Pressure
On the technical front, the AUD/USD pair trades around 0.6500, with bearish momentum strengthening. The pair remains within a descending channel, and the 14-day Relative Strength Index (RSI) is below 50, signaling persistent negative sentiment.
On the downside, support levels to watch include the four-month low of 0.6434 from November 26. A break below this level could open the door to further declines toward the yearly low of 0.6348, reached on August 5. Additional support is seen near the lower boundary of the descending channel at 0.6300.
Immediate resistance is located at the nine-day Exponential Moving Average (EMA) at 0.6502, followed by the 14-day EMA at 0.6513. A breakout above these levels could signal a potential recovery, with the next key resistance at 0.6530, the channel’s upper boundary. A clear breakout above this level could pave the way for a move toward the four-week high of 0.6687.
Outlook
The Australian Dollar is caught between the hawkish stance of the RBA and global uncertainties, including tensions between the US and China and potential measures to curb China’s technological advancements. While the Australian economy shows resilience, the ongoing inflation concerns and external risks suggest a mixed outlook for the AUD in the near term.
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