Australian Dollar Gains Ground as US Dollar Weakens Ahead of Key Inflation Data
The strength gained recently by the Australian Dollar was partly driven by improved market sentiment, broad China trade data, and rising commodity prices. An additional factor for the AUD is the stabilizing momentum as created by Beijing regarding stabilizing the Yuan. On the contrary side, the US Dollar has declined following the December Producer Price Index that came way worse than expected. Thus, as a result of this, traders are now focusing on upcoming US inflation data regarding future market trends. Key Lookouts Consumer confidence in Australia’s Westpac Consumer Confidence Index slid by 0.7% in January. This continued the trend of pessimism, in part a response to the loss of AUD in value relative to the USD. Market pricing suggests a 67% probability of the RBA cutting the cash rate by 25 basis points in February, with cuts through to April. US NFP data reported an increase of 256K jobs in December; it was better than expected but did not produce the desired result as the mixed reaction in markets indicated. Here are the key developments influencing the Australian Dollar and US Dollar dynamics in the current market environment: Consumer confidence remains one concern in Australia. The Westpac Consumer Confidence Index fell by 0.7% in January, indicating that Australian households remain pessimistic. The decline in confidence is partly due to the depreciation of the AUD against the USD, which has caused concerns about the cost of living and economic conditions. Consequently, markets are factoring in a 67% chance of the Reserve Bank of Australia (RBA) to cut interest rates by 25 basis points in February and expect more cuts in April to sustain the economic activity. AUD/USD Daily Price Chart Source: TradingView, prepared by Jacob Although there have been difficulties for the consumer sentiment in Australia, risk sentiment from other parts of the world has given some boost to the AUD. Strong trade data from China and rising commodity prices have helped boost the outlook for Australia’s economy, which is heavily reliant on exports. Moreover, Beijing’s efforts to stabilize the Yuan have contributed to a more favorable environment for risk-sensitive currencies like the AUD. With positive global factors at play, the Australian Dollar is likely to remain supported but its movement would be largely related to the future economic data released from Australia as well as from the US. Technical Analysis The AUD/USD pair is still trading within a descending channel on the daily chart, at around 0.6190. The immediate resistance is found at the 9-day EMA at 0.6193, then at the 14-day EMA at 0.6207. The next resistance is seen near the upper boundary of the descending channel, at around 0.6220. Support may be tested near the lower boundary of the channel, at around 0.5940, if the bearish momentum continues. Support and Resistance Forecast Support for the AUD/USD remains at 0.5940, which aligns with the lower boundary of the descending channel. If this level is unable to hold as support, it may open a way for even more downside action, potentially moving towards 0.5900. A violation below 0.5940 would be very bearish in nature and allow for a breakdown to even weaker levels in the short term.The key resistance for the AUD/USD pair will be at 0.6193, with the 9-day Exponential Moving Average placed there, and at 0.6207, marked by the 14-day EMA. If the pair breaks above this level, it could test the upper boundary of the descending channel around 0.6220. A strong move beyond 0.6220 could signify a change in momentum, sending the pair further up to resistance zones around 0.6250 or 0.6300.