The Australian Dollar (AUD) is hovering against the US Dollar (USD) on Wednesday. It faced losses in the previous session and now has to deal with a broadly stronger US dollar. Traders are closely watching as they await the release of crucial US November Consumer Price Index (CPI) data, which is set to come out later in the North American session.
Impact of US CPI Expectations
The US CPI inflation is estimated to rise to 2.7% year-over-year in November from 2.6% in October. Meanwhile, the core CPI, excluding Food & Energy, is expected to increase 3.3% YoY. Any sign that progress has stalled could make it less likely for the Federal Reserve (Fed) to cut rates. That, in turn, might boost the US Dollar. Traders are currently pricing in nearly an 85.8% chance of the Fed cutting rates by 25 basis points on December 18, based on the CME FedWatch Tool.
Influence of RBA’s Rate Decision
The AUD received downward pressure after the Reserve Bank of Australia’s (RBA) decision to keep the Official Cash Rate (OCR) unchanged at 4.35% in its final policy meeting in December. RBA Governor Michele Bullock pointed out that while upside inflation risks have eased, they still exist and need ongoing attention. The RBA will keep a close eye on all economic data, including employment figures, to guide future policy decisions.
Related Economic Data in Australia
The Australian Unemployment Rate remained at 4.1% in October for the third consecutive month. The economy added 9,700 full-time jobs and 6,200 part-time roles, with a net change of 15,900 positions. The RBA’s closely watched inflation gauge, the annual Trimmed Mean Consumer Price Index (CPI), slowed to 3.5% from 4.0% in the third quarter but is still well above the Bank’s 2%- 3% target. Australia’s economy grew at its slowest annual pace since the pandemic in the third quarter. The nation’s Gross Domestic Product (GDP) rose 0.3% in the September quarter, falling short of market forecasts of 0.4%.
China’s Impact on AUD
Statements and Trade Data from China
China President Xi Jinping stated on Tuesday that China has full confidence in achieving this year’s economic target. He emphasized that China will continue to be the largest engine of global economic growth and said there would be no winners in tariff wars, trade wars, or tech wars. China’s Trade Balance (CNY) increased to CNY 692.8 billion in November, up from CNY 679.1 billion in the previous month. Exports grew by 1.5% year-over-year in November, compared to the 11.2% rise in October. Meanwhile, imports increased by 1.2% YoY, recovering from the 3.7% decline earlier.
Policy and CPI Data in China
The AUD also got support from improved sentiment and stimulus expectations from China. China’s leaders announced plans for proactive fiscal and looser monetary policies to accelerate domestic consumption in 2024. However, weak Chinese CPI data (-0.6% in November, worse than expected) shows challenges in the recovery but also adds to speculation about stimulus.
Technical Analysis of AUD/USD
Current Situation
AUD/USD trades near 0.6370 on Wednesday. The technical analysis of a daily chart shows strengthening bearish momentum as the pair moves downwards within a descending channel pattern. Additionally, the 14-day Relative Strength Index (RSI) is positioned slightly above 30, indicating sustained negative sentiment.
Support and Resistance Levels
The immediate support appears around its yearly low of 0.6348, last seen on August 5. If it breaks below this level, it could strengthen the bearish bias and put more downward pressure on the AUD/USD pair to head towards the region around the descending channel’s lower boundary at 0.6220 level. On the upside, the AUD/USD pair may find initial resistance around the nine-day Exponential Moving Average (EMA) at 0.6428, followed by the 14-day EMA at 0.6449, which lines up closely with the upper boundary of the descending channel. A decisive breakout above this channel could lead to a potential rally toward the seven-week high of 0.6687.
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