The Australian Dollar (AUD) stopped its two-day losing streak against the US Dollar (USD) on Thursday. It remained stronger following the release of domestic mixed employment data. Australia’s seasonally adjusted Employment Change rose by 35,600 in November, bringing the total number of employed people to 14,535,500. This figure surpassed the previous reading of 12,100 and the expected 25,000. Meanwhile, the Unemployment Rate dropped to 3.9%, the lowest since March and lower than the market estimates of 4.2%.
Impact of US Inflation Report on AUD/USD
The AUD/USD pair faced challenges due to the generally stronger US dollar after the release of the US inflation report on Wednesday. The US Consumer Price Index (CPI) increased to 2.7% year-over-year in November from 2.6% in October. The headline CPI showed a 0.3% monthly reading, in line with the market consensus. The core CPI, excluding volatile food and energy prices, climbed 3.3% YoY and also increased 0.3% MoM in November as expected.
Expectations for Fed Rate Cut
However, the latest US inflation report doesn’t seem to stop the Federal Reserve (Fed) from cutting rates at its December meeting next week. Traders are now pricing in nearly a 99% chance of the Fed reducing rates by 25 basis points on December 18, according to the CME FedWatch Tool. And traders are now focusing on the US November Producer Price Index (PPI) for new momentum as it will be released later on Thursday.
AUD’s Pressures and Support Amid Various Factors
Pressure from China’s Considerations
The AUD received downward pressure on Wednesday as China, a key trading partner of Australia, saw its top leaders and policymakers consider letting the Chinese Yuan fall in response to an expected sharp hike in US tariffs, as reported by Reuters.
China’s Economic Statements and Data
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 from CNY 679.1 billion in the previous month. Exports grew by 1.5% year-over-year in November compared to a 11.2% rise in October. Meanwhile, imports increased by 1.2% YoY, recovering from a 3.7% decline earlier.
RBA’s Policy and GDP Growth
The Reserve Bank of Australia decided 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 persist and require ongoing attention. The RBA will closely monitor all economic data including employment figures to guide future policy decisions. Australia’s economy grew at its slowest annual pace since the pandemic in the third quarter. The country’s Gross Domestic Product (GDP) rose 0.3% in the September quarter, missing market forecasts of 0.4%. This made markets almost fully price in a rate cut next April at 96% (from 73% before), according to Refinitive interest rate probabilities data.
Support from China’s Policies
The Australian Dollar received 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. Weak Chinese CPI data (-0.6% in November, worse than expected) highlights challenges in the recovery but also bolsters stimulus speculation.
AUD/USD’s Technical Outlook and Key Levels
Current Trading and Technical Bias
AUD/USD trades near 0.6410 on Thursday. The technical analysis of a daily chart shows a strengthening bearish bias as the pair is within a descending channel pattern. Also, the 14-day Relative Strength Index (RSI) remains below the 50 level, indicating continued negative momentum.
Support and Resistance Levels
On the downside, the yearly low of 0.6348, seen last on August 5, served as immediate support in the previous session. If the price breaks below this level, it could strengthen the bearish bias and push the AUD/USD pair toward the descending channel’s lower boundary around the 0.6200 level. The AUD/USD pair faces an initial barrier around the nine-day Exponential Moving Average (EMA) at 0.6422, followed by the descending channel’s upper boundary at 0.6440 level. A decisive breakout above this channel could lead to a potential rally toward the seven-week high of 0.6687.
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