The Australian Dollar (AUD) stabilized on Monday following two days of gains, while the US Dollar (USD) remained subdued after the release of the Personal Consumption Expenditures (PCE) Price Index data from the United States (US) on Friday.
The softer inflation data for November has strengthened expectations that the Federal Reserve (Fed) will continue easing its policy in 2025. Market sentiment is now largely aligned with the CME FedWatch tool, which shows a more than 90% probability that the Fed will keep interest rates unchanged in January, maintaining the current range of 4.25%–4.50%.
Meanwhile, the Reserve Bank of Australia (RBA) is expected to begin cutting its cash rate as early as February, driven by signs of an economic slowdown. Traders are preparing for the release of the RBA’s Meeting Minutes on Tuesday, following its decision to keep interest rates steady at 4.35% for the ninth consecutive meeting.
Fed Easing Expectations and RBA Rate Cuts Support AUD
US core PCE inflation, the Fed’s preferred inflation measure, showed a year-over-year increase of 2.8%, slightly below the expected 2.9%. Monthly core inflation rose by 0.1%, below the forecast of 0.2% and the previous 0.3% rise. These results bolstered expectations for continued Fed rate cuts in 2025.
Australia’s Private Sector Credit grew by 0.5% month-over-month in November, in line with expectations. On an annual basis, Private Sector Credit rose by 6.2%, the highest growth since May 2023. This signals stability in Australia’s credit markets, further supporting the AUD.
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, during its quarterly meeting. Meanwhile, US economic data showed robust growth, with third-quarter GDP surpassing expectations at 3.1%, and Initial Jobless Claims dropping to 220,000 for the week ending December 13.
National Australia Bank (NAB) maintained its forecast for the first RBA rate cut to occur in May 2025 but acknowledged that a February cut remains possible. NAB expects the unemployment rate to peak at 4.3% before easing to 4.2% by 2026 as the economy stabilizes.
RBA Governor Michele Bullock emphasized the strength of the labor market as a key factor in the central bank‘s cautious approach to monetary easing compared to other nations.
AUD/USD Outlook: Technical Indicators Suggest Potential Upward Correction
The AUD/USD pair hovered around 0.6250 on Monday, with the daily chart showing a continued bearish bias as the pair remains within a descending channel. However, the 14-day Relative Strength Index (RSI) above the 30 level suggests a potential near-term upward correction.
On the downside, the AUD/USD pair may test the support level near 0.6120, the lower boundary of the descending channel. Resistance is expected 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 toward the nine-week high of 0.6687.
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