The Australian Dollar (AUD) remained flat amid growing concerns over domestic consumer confidence, with December data revealing a decline in sentiment. The Westpac Consumer Confidence index fell by 2% to 92.8 points, reversing two months of positive momentum. This drop in consumer outlook reflects increasing pessimism about the economic future. Meanwhile, attention shifts to the US Federal Reserve (Fed) as traders anticipate a potential interest rate cut in its meeting on Wednesday, focusing particularly on the Fed’s 2025 projections.
In the US, the Dollar (USD) has remained subdued for the third consecutive session, as the market exercises caution ahead of the Fed’s decision. On Monday, the S&P Global Composite Purchasing Managers Index (PMI) rose to 56.6, reflecting positive economic growth, although the Manufacturing PMI dropped to 48.3, signaling contraction. Market expectations are now nearly fully aligned with a quarter-point interest rate cut by the Fed, with investors eagerly awaiting comments from Fed Chair Jerome Powell and the release of the Summary of Economic Projections (dot-plot).
In Australia, traders are increasingly betting that the Reserve Bank of Australia (RBA) may cut interest rates sooner and more significantly than previously anticipated, although any changes will depend on future economic data. The Australian Dollar is also under pressure from developments in China, Australia’s largest trading partner. While Chinese authorities plan to increase their fiscal deficit target next year to bolster consumption, concerns remain about the impact of looming US tariffs and a slowdown in retail sales growth. In November, China’s Retail Sales grew by only 3.0%, falling short of expectations.
China’s economic outlook remains mixed, with the National Bureau of Statistics reporting stable conditions in November, citing ongoing recovery in consumption. The Chinese government has committed to policies aimed at boosting domestic demand. However, the lack of detailed fiscal measures has added downward pressure on the AUD.
Australia’s own economic data shows signs of strain, with the preliminary Judo Bank Manufacturing PMI dropping to 48.2 in December, indicating contraction, while the Services PMI eased slightly to 50.4. These figures, along with a recent decline in the Composite PMI, suggest that economic growth is slowing, further intensifying expectations of future RBA rate cuts.
Technical analysis of the AUD/USD pair shows it holding steady near the 0.6370 level, with a bearish bias dominating as the pair remains trapped in a descending channel. The AUD/USD faces initial support at the yearly low of 0.6348, with a potential break below that level opening the door for further declines toward the channel’s lower boundary at 0.6170. Resistance is seen at 0.6390, near the nine-day Exponential Moving Average (EMA), followed by the 14-day EMA at 0.6412. A breakout above these levels could push the pair toward an eight-week high of 0.6687.
As market sentiment remains cautious, the direction of the AUD will largely depend on the forthcoming decisions from the US Fed and the evolving economic data from both Australia and China.
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