The Australian Dollar (AUD) advanced against the US Dollar (USD) for a second straight day on Tuesday, recovering from its lowest point since April 2020 at 0.6131. Strong commodity prices bolstered the AUD, driving gains in the AUD/USD pair.
Market Boosts Risk Sentiment
US President-elect Donald Trump’s economic team’s consideration of phased import tariffs fueled investor confidence, benefiting risk-sensitive currencies such as the AUD. The move also lifted the AUD/JPY pair.
Domestically, the S&P/ASX 200 Index gained 0.2% to reach 8,210, ending a three-day losing streak. Mining and energy stocks led the rebound, mirroring Wall Street’s overnight gains, as investors diversified beyond megacap tech stocks.
Consumer Confidence and RBA Rate Speculation
Australia’s economic sentiment remains subdued, with the Westpac Consumer Confidence Index falling 0.7% to 92.1 points in January 2025, marking its second consecutive monthly decline. This persistent consumer pessimism coincides with market expectations of a 75% probability for a rate cut by the Reserve Bank of Australia (RBA) next month. Traders are keenly awaiting Australian employment data later this week to assess its potential influence on the RBA’s policy decisions.
China’s Economic Influence
The AUD found support from China’s recent stimulus measures, underscoring the deep trade ties between the two nations. The People’s Bank of China (PBOC) increased the macro-prudential adjustment parameter for cross-border financing and reiterated its commitment to ample liquidity through interest rate and reserve requirement ratio adjustments.
USD Strengthens on Hawkish Fed Signals
The US Dollar Index (DXY) remained strong near 109.60, its highest level since November 2022, supported by robust US labor market data. Nonfarm Payrolls surged by 256,000 in December, surpassing market expectations of 160,000. Rising US Treasury yields further bolstered the USD, with the 2-year yield reaching 4.42% and the 10-year yield climbing to 4.80%.
Federal Reserve policymakers signaled a cautious yet hawkish approach to rate adjustments. Kansas Fed President Jeffrey Schmid highlighted progress toward achieving the Fed’s mandates while advocating gradual rate cuts tied to economic data.
Technical Outlook: AUD/USD Faces Key Levels
The AUD/USD pair trades near 0.6190, holding a bearish trend within a descending channel. The 14-day Relative Strength Index (RSI) climbed above 30, indicating a recovery from oversold conditions.
Resistance levels are observed at the nine-day Exponential Moving Average (EMA) at 0.6193, followed by the 14-day EMA at 0.6210. A major hurdle lies near 0.6230, the upper boundary of the descending channel. On the downside, critical support rests near 0.5940, the channel’s lower boundary.
The AUD’s outlook remains contingent on upcoming economic data and central bank policies amid broader market volatility.
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