The Australian Dollar (AUD) halted a two-day losing streak against the US Dollar (USD) on Monday, supported by rising metals prices. However, the AUD/USD pair’s upside potential may be limited, as the US Dollar (USD) could gain strength due to market caution ahead of President-elect Donald Trump’s inauguration. Additionally, US markets were closed on Monday for the Martin Luther King Jr. Day holiday.
The People’s Bank of China (PBOC) announced on Monday that it would keep its Loan Prime Rates (LPRs) unchanged, with the one-year LPR at 3.10% and the five-year LPR at 3.60%. As China is a major trading partner of Australia, any shifts in the Chinese economy could impact Australian markets.
The AUD also gained momentum from robust economic data out of China. China’s GDP grew by 5.4% year-on-year in the fourth quarter of 2024, surpassing the market expectation of 5%. Additionally, Retail Sales in December increased by 3.7%, above the expected 3.5%, and Industrial Production rose 6.2%, well above the forecasted 5.4%.
RBA Rate Cut Speculations Weigh on AUD Outlook
Despite these positive developments, the Australian Dollar faces challenges as market expectations rise that the Reserve Bank of Australia (RBA) may begin cutting rates as early as next month. Traders are now focused on Australia’s upcoming quarterly inflation report, due next week, for clues on the RBA’s future monetary policy direction.
US Dollar Strengthens Amid Market Uncertainty Over Trump’s Policies
The US Dollar Index (DXY), which tracks the USD’s performance against six major currencies, stood near 109.30 on Monday. The USD found support from rising US Treasury yields, driven by concerns over Trump’s policy plans, including tariffs, tax cuts, and immigration measures. Analysts believe the US Federal Reserve’s interest rate path will largely depend on the degree to which Trump enacts these policies.
Market participants are closely monitoring Trump’s planned executive orders, expected shortly after his inauguration, while the Fed is widely anticipated to keep interest rates steady at its January meeting, with rate hikes expected to resume in March.
Expectations of two interest rate cuts from the Fed in 2025 have pressured US Treasury bond yields lower. US Retail Sales in December rose by 0.4%, falling short of expectations for a 0.6% increase. The US Consumer Price Index (CPI) rose 2.9% year-on-year in December, in line with market expectations.
Technical Analysis: AUD/USD Remains Under Pressure Below Key Resistance
The AUD/USD pair was trading near 0.6210 on Monday, attempting to break above a descending channel on the daily chart. A successful breakout could weaken the prevailing bearish bias, although the 14-day Relative Strength Index (RSI) remains below 50, indicating the bearish trend is still intact.
Initial support is found at the nine-day Exponential Moving Average (EMA) at 0.6202, with more substantial support near the recent low of 0.6131. A break below this level could send the AUD/USD pair towards the lower boundary of the descending channel, around 0.5900.
On the upside, immediate resistance lies at the 14-day EMA at 0.6210, aligning with the upper boundary of the descending channel. A break above this level could signal a potential shift in momentum.
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