The Australian Dollar (AUD) held steady on Monday following two days of gains, with the US Dollar (USD) remaining subdued after the release of softer US inflation data. The Personal Consumption Expenditures (PCE) Price Index for November, which was released last Friday, has fueled market expectations that the Federal Reserve (Fed) will continue its policy easing in 2025.
Softer US Inflation Data Shifts Fed Outlook
The latest US inflation data showed that core PCE inflation rose 2.8% year-over-year, slightly below market expectations of 2.9%. Monthly core inflation increased by just 0.1%, falling short of the anticipated 0.2%. This has strengthened market sentiment that the Fed will keep interest rates unchanged in January, with the CME FedWatch tool indicating over a 90% probability that the central bank will maintain rates in the current range of 4.25%–4.50%.
RBA Rate Cut Expectations
In contrast, traders are increasingly anticipating that the Reserve Bank of Australia (RBA) will begin cutting its cash rate as early as February, amid growing signs of an economic slowdown in Australia. The RBA’s meeting minutes, due for release on Tuesday, will be closely watched, especially after the bank held interest rates steady at 4.35% for the ninth consecutive meeting.
Australia’s Private Sector Credit Shows Positive Growth
Australia’s Private Sector Credit rose by 0.5% month-over-month in November, matching expectations. This followed a 0.6% increase in October, the fastest monthly growth in four months. On an annual basis, Private Sector Credit climbed by 6.2% in November, the highest growth rate since May 2023. This has provided some support for the Australian Dollar, although traders remain cautious ahead of the RBA’s next moves.
US Economic Data Supports USD
On the US side, the economy showed continued strength. US GDP for the third quarter grew at an annualized rate of 3.1%, surpassing market expectations and the previous reading of 2.8%. Additionally, Initial Jobless Claims dropped to 220,000 for the week ending December 13, lower than the forecasted 230,000, adding to the positive economic sentiment.
China Holds Rates Steady
Meanwhile, the People’s Bank of China (PBoC) kept its one- and five-year Loan Prime Rates (LPRs) unchanged at 3.10% and 3.60%, respectively, at its fourth quarterly meeting, indicating no immediate policy shift despite global economic challenges.
NAB Forecasts Potential RBA Rate Cut in 2025
National Australia Bank (NAB) has maintained its forecast for the first RBA rate cut to occur in May 2025, although it acknowledges February as a possible timeframe. The bank expects Australia’s unemployment rate to peak at 4.3% before easing to 4.2% by 2026. NAB also projects Q4 trimmed mean inflation at 0.6% quarter-on-quarter, with a gradual decline to 2.7% by late 2025.
RBA Governor Michele Bullock has pointed to the continued strength of Australia’s labor market as a key reason the central bank has been slower than other nations in initiating monetary easing.
AUD/USD Outlook
The AUD/USD pair traded near 0.6250 on Monday, with daily chart analysis suggesting a bearish bias as the pair remains within a descending channel pattern. However, the 14-day Relative Strength Index (RSI) above the 30 level indicates the potential for a near-term upward correction.
On the downside, the pair may test the lower boundary of the channel near the 0.6120 support level. On the upside, resistance lies near the nine-day Exponential Moving Average (EMA) at 0.6303, followed by the 14-day EMA at 0.6337. A breakout above the upper boundary of the channel, around 0.6380, could push the pair towards a nine-week high of 0.6687.
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