The Australian Dollar has experienced a rebound, ending a three-day decline as the US Dollar remains under pressure amidst optimism in the bond market. The latest Consumer Price Index (CPI) data from Australia showed a 2.1% year-over-year increase for October, which while steady from the previous month, fell short of expectations for a 2.3% rise. This figure represents the lowest inflation rate since July 2021 and keeps the inflation rate within the Reserve Bank of Australia’s (RBA) target range of 2-3% for a third consecutive month.
Market sentiment could temper the upside potential of the AUD/USD pair, particularly with concerns surrounding recent trade policies announced by the incoming US administration. President-elect Trump has implemented a 10% tariff increase on all Chinese imports, potentially impacting both the US and Australian economies due to their close trade ties. The trade dynamics are expected to be a focal point in discussions between China and the US, as officials express hopes for constructive engagement to navigate the complexities of their economic relationship.
Support for the Australian Dollar has been bolstered by a hawkish outlook from the RBA. Recent minutes from the Federal Open Market Committee’s policy meeting indicated a cautious approach towards further interest rate cuts, with a focus on a steady inflation rate and a strong labor market.
In the US, there are indications of a continued trend towards lower interest rates. The selection of financial expert Scott Bessent as Treasury Secretary is seen as reflective of a conservative fiscal approach. Meanwhile, projections from futures traders suggest a 57.7% likelihood of a quarter-point rate cut by the Federal Reserve in December, emphasizing a growing consensus for easing monetary policy.
Predictions from Australia’s major banks suggest an imminent interest rate cut from the RBA, with Westpac and National Australia Bank revising their forecasts to May, while the Commonwealth Bank and ANZ foresee a potential cut as early as February.
Technically, the AUD/USD pair hovers around 0.6470, facing bearish momentum within a descending channel. A potential test of the November 26 low of 0.6434 looms, with further support near 0.6348, last seen in early August. Conversely, resistance levels are identified at 0.6495 and 0.6512, with the upper boundary of the channel sitting at 0.6550 — suggesting that a break above these levels could pave the way for an exploration towards higher levels around 0.6687.
