The Australian Dollar (AUD) has halted a two-day losing streak against the US Dollar (USD) on Thursday, supported by mixed domestic employment data. Australia’s seasonally adjusted Employment Change for November rose by 35,600, significantly surpassing the previous reading of 12,100 and market expectations of a 25,000 increase. This brought the total number of employed people to 14,535,500. Additionally, the Unemployment Rate dropped to 3.9%, its lowest level since March, well below the expected 4.2%.
Despite the positive employment figures, the AUD/USD pair faced headwinds due to a broadly stronger US Dollar following the release of the US inflation report on Wednesday. The US Consumer Price Index (CPI) for November increased to 2.7% year-over-year, up from 2.6% in October, while the monthly CPI rose 0.3%, in line with expectations. The core CPI, excluding food and energy, climbed 3.3% YoY, with a 0.3% MoM increase.
However, the latest US inflation data does not appear strong enough to deter expectations that the Federal Reserve will cut rates at its December meeting. The CME FedWatch Tool now indicates a nearly 99% probability of a 25 basis point rate reduction by December 18. Traders are awaiting the release of the US November Producer Price Index (PPI) later on Thursday for further market direction.
AUD Pressured by China’s Economic Outlook and US Tariff Concerns
The Australian Dollar also faced downward pressure earlier in the week as China, a key trading partner of Australia, reportedly considered allowing the Chinese Yuan to weaken in response to an anticipated sharp hike in US tariffs. On Tuesday, Chinese President Xi Jinping reaffirmed China’s confidence in meeting its economic goals for the year, while also highlighting the risks of trade and tech wars, stating that there would be no winners in such conflicts.
China’s November Trade Balance increased to CNY 692.8 billion, driven by a 1.5% year-over-year rise in exports. However, this was a significant slowdown from October’s 11.2% growth. Imports rose 1.2%, a rebound from the previous month’s 3.7% decline. These mixed trade data highlight the challenges facing China’s economy, which has impacted the Australian Dollar.
RBA Holds Rates Steady Amid Economic Slowdown
The Reserve Bank of Australia (RBA) kept the Official Cash Rate (OCR) unchanged at 4.35% during its December meeting, with Governor Michele Bullock noting that while inflation risks have eased, vigilance is still required. The RBA will continue to monitor economic data, including employment figures, to guide future policy decisions. Australia’s GDP growth slowed to just 0.3% in Q3, missing market expectations of 0.4%, reinforcing market expectations of a potential rate cut in April 2024, with a 96% probability of such a move according to Refinitiv data.
Nonetheless, the AUD has received some support from positive sentiment around China’s economic outlook. Chinese policymakers have announced plans for fiscal and monetary stimulus in 2024, aimed at boosting domestic consumption. However, weak Chinese CPI data (-0.6% in November) underscores the challenges in the recovery, while also fueling expectations of further stimulus.
Technical Outlook: AUD/USD Faces Resistance at 0.6420
On the technical front, the AUD/USD is trading near 0.6410 on Thursday. The daily chart shows a strengthening bearish bias, with the pair confined within a descending channel pattern. The 14-day Relative Strength Index (RSI) remains below 50, indicating sustained negative momentum.
Key support is seen at the yearly low of 0.6348, last touched on August 5. A break below this level could strengthen the bearish trend, potentially pushing AUD/USD toward the channel’s lower boundary around the 0.6200 level.
On the upside, the pair faces initial resistance at the nine-day Exponential Moving Average (EMA) at 0.6422, followed by the upper boundary of the descending channel at 0.6440. A decisive breakout above these levels could pave the way for a potential rally toward the seven-week high of 0.6687.
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