The Australian Dollar (AUD) halted its four-day losing streak on Monday, as the US Dollar (USD) weakened amid sluggish US Treasury yields. This shift comes ahead of the Federal Reserve’s (Fed) interest rate decision scheduled for Wednesday, with markets widely expecting a 25 basis point cut in the Fed’s final policy meeting of 2024. According to the CME FedWatch tool, a quarter-point rate cut is almost fully priced in for December.
Meanwhile, data from China showed mixed results. Retail Sales rose 3.0% year-over-year in November, missing expectations of a 4.6% increase, while Industrial Production climbed 5.4%, surpassing the anticipated 5.3% rise. The National Bureau of Statistics (NBS) offered a cautiously optimistic outlook for the economy, noting a stable trend in consumption and plans to implement further measures aimed at expanding domestic demand.
Despite this, concerns remain over the economic pressures facing China, particularly as authorities, led by President Xi Jinping, have signaled plans to raise the fiscal deficit target in 2025. The lack of clear fiscal support details, amid the threat of new US tariffs on Chinese exports, has placed downward pressure on the AUD, as China remains Australia’s largest trading partner.
The Australian Dollar also faces challenges from the Reserve Bank of Australia‘s (RBA) dovish stance. Market participants are increasingly betting that the RBA will cut interest rates sooner and more significantly than initially expected. The RBA’s cautious approach is reflected in the latest data, including a decline in the preliminary Australian Judo Bank Manufacturing PMI to 48.2 in December from 49.4 in November, and a slight dip in the Services PMI to 50.4 from 50.5.
In economic news, Australia’s employment data showed a positive surprise, with a seasonally adjusted Employment Change of 35,600 in November, reducing the Unemployment Rate to 3.9%, its lowest since March. Despite this, the RBA is likely to maintain a careful approach to monetary policy, closely monitoring all economic data.
In the US, the Producer Price Index (PPI) increased by 0.4% month-over-month in November, the largest gain since June, beating expectations of a 0.2% rise. This, along with the Fed’s anticipated rate cut, continues to support a weaker USD.
On the technical side, AUD/USD traded near 0.6370 on Monday, showing a bearish trend within a descending channel. The pair faces immediate support around the yearly low of 0.6348, while resistance is seen at the nine-day Exponential Moving Average (EMA) at 0.6396, followed by the 14-day EMA at 0.6419. A breakout above these levels could push the pair toward the eight-week high of 0.6687.
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