The Australian Dollar (AUD) recovered slightly from earlier losses on Thursday following the release of Australia’s Consumer Inflation Expectations. However, the AUD/USD pair continued to decline as the US Dollar (USD) strengthened after the Federal Reserve’s (Fed) hawkish 25 basis points rate cut on Wednesday. The cut lowered the benchmark lending rate to a two-year low of 4.25%-4.50%, intensifying downward pressure on the AUD.
Australia’s Consumer Inflation Expectations rose to 4.2% in December, up from 3.8% in November, marking the highest level since September. Despite this increase, the AUD remains under pressure due to growing expectations that the Reserve Bank of Australia (RBA) will reduce interest rates sooner and more aggressively than previously anticipated. Future RBA decisions will be shaped by ongoing data and evolving risk assessments.
The USD’s strength was bolstered by the Federal Reserve’s latest economic projections, which revealed that only two rate cuts are now expected in 2025, a revision from the four cuts initially forecasted in September. Fed Chair Jerome Powell emphasized that the central bank would remain cautious in further rate reductions, as inflation continues to stay above the 2% target.
Traders are also awaiting key US data, including the weekly Initial Jobless Claims, Existing Home Sales, and the final third-quarter GDP reading, all due later on Thursday.
The Australian Dollar continues to face downward pressure following the Fed’s rate cut, with the National Australia Bank (NAB) maintaining its forecast for the first RBA rate cut in May 2025, though a February cut remains a possibility. NAB’s report anticipates Australia’s unemployment rate will peak at 4.3% before easing to 4.2% by 2026. Meanwhile, the country’s trimmed mean inflation for Q4 is expected at 0.6% quarter-on-quarter, with inflation easing gradually to 2.7% by late 2025.
In addition to domestic concerns, Australia’s economic outlook is being influenced by developments in China, its largest trading partner. Reuters reported that China plans to target economic growth of around 5% in 2025, maintaining the same goal as this year. However, this comes amid a record $45.7 billion net outflow from China’s capital markets in November, further putting pressure on the AUD.
Elsewhere, the US Census Bureau reported a 0.7% month-on-month increase in US retail sales for November, surpassing expectations. The preliminary S&P Global US Composite PMI rose to 56.6 in December, reflecting robust service sector growth. However, manufacturing activity showed signs of contraction, with the Manufacturing PMI dropping to 48.3.
On the technical front, the AUD/USD pair is trading around 0.6220, maintaining a bearish bias within a descending channel pattern. The pair’s Relative Strength Index (RSI) has dipped below 30, signaling an oversold condition and suggesting a potential for upward correction. Immediate support lies around the 0.6140 level, the lower boundary of the channel. On the upside, the initial resistance is seen at the 9-day Exponential Moving Average (EMA) near 0.6326, with further resistance at the 14-day EMA at 0.6362. A breakout above the channel could push the pair towards an eight-week high at 0.6687.
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