The Australian Dollar (AUD) continued its decline on Tuesday after the Reserve Bank of Australia (RBA) decided to keep its Official Cash Rate (OCR) unchanged at 4.35% during its final policy meeting of the year. This marks the ninth consecutive meeting at which the RBA has held rates steady, leaving borrowing costs at a 12-year high.
RBA’s Cautious Stance Amid Persistent Inflation Risks
RBA Governor Michele Bullock defended the decision, stating that while upside inflation risks have moderated, they persist and warrant ongoing vigilance. She emphasized that future policy decisions will hinge on economic data, particularly employment figures, as the central bank seeks to balance inflation control with sustainable economic growth.
Weak Domestic Economic Indicators Amplify Pressure on AUD
Labor Market: The unemployment rate held steady at 4.1% in October, with a modest net gain of 15,900 jobs, evenly split between full-time and part-time roles.
Inflation: The RBA’s preferred Trimmed Mean Consumer Price Index (CPI) decelerated to 3.5% annually in the third quarter, still above the 2%-3% target range.
Growth: GDP grew by 0.3% in the September quarter, missing expectations of 0.4% and marking the slowest annual growth rate since the pandemic.
Market expectations for an RBA rate cut in April 2024 have surged, with probability estimates rising to 96%, according to Refinitiv data.
External Factors Weigh on the Australian Dollar
The Australian Dollar’s struggles are compounded by external headwinds:
US Dollar Strength: The USD extended its rally for the third consecutive day as traders positioned cautiously ahead of Wednesday’s US Consumer Price Index (CPI) report. Robust US Nonfarm Payrolls (NFP) data last week, showing a gain of 227,000 jobs, has supported USD demand despite expectations of a Federal Reserve rate cut on December 18.
China’s Economic Performance: China, Australia’s largest trading partner, reported mixed trade data in November, with exports rising just 1.5% year-over-year compared to October’s 11.2% gain. Weak consumer price data further underscored challenges to recovery. However, China’s proactive fiscal and monetary policy plans for 2024 offered some support for the AUD.
Technical Analysis: AUD/USD Falls to Five-Month Low
The AUD/USD pair is trading near 0.6420, marking a fresh five-month low after breaking below the previous support of 0.6434.
Support Levels:
- Immediate support lies at the yearly low of 0.6348, recorded on August 5.
- A deeper decline could test the descending channel’s lower boundary around 0.6225.
Resistance Levels:
- Immediate resistance is at the nine-day Exponential Moving Average (EMA) of 0.6449.
- A break above the 14-day EMA at 0.6465 could signal a rally toward 0.6687, the five-week high.
- The 14-day Relative Strength Index (RSI) remains below 50, indicating sustained bearish momentum.
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