The Australian Dollar (AUD) remained subdued against the US Dollar (USD) on Wednesday, following losses in the previous session, as the broadly stronger US Dollar continued to weigh on the AUD/USD pair. Traders are now awaiting the release of the critical US November Consumer Price Index (CPI) data later in the North American session, which could provide fresh direction for the pair.
US CPI inflation is expected to rise to 2.7% year-over-year in November, up from 2.6% in October, with core CPI (excluding food and energy) forecast to remain steady at 3.3%. Any signs of persistent inflation could reduce expectations for a Federal Reserve (Fed) rate cut, providing further support for the USD. Markets are currently pricing in an 85.8% chance of a 25-basis point rate reduction by the Fed in its December 18 meeting, according to the CME FedWatch Tool.
RBA’s Decision Weighs on Australian Dollar
The AUD faced additional pressure after the Reserve Bank of Australia (RBA) kept the Official Cash Rate (OCR) unchanged at 4.35% in its final policy meeting of the year. RBA Governor Michele Bullock noted that while upside inflation risks have eased, they remain a concern, necessitating ongoing vigilance. The RBA is expected to closely monitor economic data, including employment figures, before making further policy decisions.
Australia’s economy showed signs of slowing, with GDP growing at its weakest annual pace since the pandemic in Q3, expanding just 0.3%, below market expectations of 0.4%. This weak growth, combined with subdued inflation, has led markets to nearly fully price in a rate cut by April 2024, with a 96% probability, according to Refinitiv interest rate data.
China’s Stimulus Expectations Support AUD
The Australian Dollar received some support from improving sentiment and expectations of stimulus measures from China, Australia’s largest trading partner. Chinese leaders recently announced plans for fiscal and monetary stimulus to boost domestic consumption in 2024. Although China’s inflation data showed a 0.6% YoY decline in November, which was worse than expected, the weak CPI bolstered hopes for further stimulus measures to stimulate the recovery.
Technical Outlook: AUD/USD Faces Bearish Momentum
On the technical front, the AUD/USD pair remained under pressure, trading near the 0.6370 mark on Wednesday. The pair is within a descending channel pattern, with bearish momentum strengthening. The 14-day Relative Strength Index (RSI) is just above 30, indicating ongoing negative sentiment.
Immediate support for the pair is around the yearly low of 0.6348, last seen on August 5. A break below this level could reinforce the bearish outlook, pushing the pair toward the lower boundary of the descending channel at 0.6220. On the upside, resistance is seen at the 9-day Exponential Moving Average (EMA) near 0.6428, with further resistance at the 14-day EMA around 0.6449. A breakout above this channel could set the stage for a rally toward the seven-week high of 0.6687.
Traders are likely to remain cautious ahead of the US CPI data and the upcoming Australian economic reports, which will provide further clarity on the direction for AUD/USD.
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