The Australian Dollar (AUD) continued its upward momentum against the US Dollar (USD) on Tuesday, marking its second consecutive day of gains after rebounding from 0.6131, the lowest point since April 2020. This rise is primarily attributed to robust commodity prices that have supported the AUD.
Investor confidence was further bolstered by US President-elect Donald Trump’s economic team, which proposed a gradual increase in import tariffs. This development supported risk-sensitive currencies like the AUD, contributing to its strength, particularly against the Japanese Yen (JPY).
The S&P/ASX 200 Index rose by 0.2%, reaching approximately 8,210 points, ending a three-day losing streak. Mining and energy stocks led the recovery, reflecting the positive momentum in Australian shares, which followed the overnight gains seen on Wall Street. On the US markets, investors shifted their focus from large tech stocks to other sectors.
Despite this positive trend, traders remained cautious after data revealed a second consecutive monthly decline in consumer confidence. Australia’s Westpac Consumer Confidence Index fell by 0.7% to 92.1 points in January 2025, signaling ongoing pessimism among consumers.
The AUD/USD pair continues to face downward pressure, with markets pricing in a 75% chance of a rate cut by the Reserve Bank of Australia (RBA) in February. Traders will closely examine upcoming Australian employment data for further indications on the RBA’s future policy stance.
The AUD also benefitted from China’s recent stimulus measures. Given the close economic ties between Australia and China, shifts in Chinese economic conditions have a significant impact on Australian markets.
US Dollar’s Strength Limits AUD’s Gains
Meanwhile, the US Dollar Index (DXY), which tracks the performance of the USD against six major currencies, hovered near 109.60, its highest level since November 2022. The USD strengthened following strong US labor market data for December, which suggests that the Federal Reserve may keep interest rates at current levels.
The US labor data contributed to a rise in US Treasury yields, with the 2-year yield climbing to 4.42% and the 10-year yield reaching 4.80%. Nonfarm Payrolls (NFP) rose by 256K in December, far exceeding expectations and surpassing the revised November figure.
Federal Reserve officials have been vocal about maintaining a cautious approach to rate cuts in 2025, with Kansas Fed President Jeffrey Schmid noting that most of the Fed’s targets have been met. Schmid suggested future rate cuts should be gradual, depending on economic data.
China’s Economic Measures Offer Support
In a related development, the China Foreign Exchange Committee (CFXC) reiterated its commitment to supporting the Chinese Yuan. The People’s Bank of China (PBOC) also announced an increase in the macro-prudential adjustment parameter for cross-border financing, which took effect on January 13, 2025.
TD-MI’s Inflation Gauge rose by 0.6% month-over-month in December, accelerating from the previous month’s 0.2% increase. On an annual basis, the gauge rose by 2.6%, down from 2.9% in November. The PBOC’s Governor Pan Gongsheng emphasized the importance of maintaining ample liquidity and indicated plans to increase China’s fiscal deficit.
Technical Outlook for AUD/USD
The AUD/USD pair remained within a descending channel on the daily chart, trading around 0.6190 on Tuesday. The 14-day Relative Strength Index (RSI) has risen above 30, indicating a recovery from oversold conditions.
Immediate resistance is at the nine-day Exponential Moving Average (EMA) at 0.6193, followed by the 14-day EMA at 0.6210. A more significant resistance level exists near 0.6230, the upper boundary of the descending channel. On the downside, the pair may test support near 0.5940, the lower boundary of the channel.
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