The Australian Dollar (AUD) is experiencing a slight rebound following recent gains, supported by the U.S. Dollar’s weakness after the release of the Personal Consumption Expenditures Price Index (PCE) data. This report, which impacted market sentiment, indicates that U.S. inflation figures have strengthened the belief that the Federal Reserve may adopt a gradual approach to easing its interest rates in 2025. Market analysis suggests there is over a 90% chance the Fed will maintain the current interest rate range of 4.25% – 4.50% in January.
Meanwhile, the Reserve Bank of Australia (RBA) is likely to initiate rate cuts as early as February in response to signs of a slowing economy. Traders are closely watching for the RBA’s meeting minutes due to be published shortly, which will follow a decision to hold rates steady at 4.35% for the ninth consecutive meeting. This suggests that while the AUD is gaining some traction, additional pressure may arise from potential domestic monetary easing.
Recent inflation metrics point to a moderation in U.S. core PCE inflation, which increased by 2.8% year-over-year, missing expectations of 2.9%. The monthly increase registered at 0.1%, lower than the anticipated 0.2%. Concurrently, Australia’s Private Sector Credit saw a growth of 0.5% month-over-month in November, reflecting a steady economic climate and aligning with market expectations.
As for China’s economy, the People’s Bank of China has opted to keep its Loan Prime Rates unchanged, indicating a stable approach to monetary policy. Additionally, U.S. economic indicators are portraying resilience, with GDP growth surpassing forecasts at 3.1% for the third quarter, and a noticeable decrease in jobless claims.
The NAB’s outlook points toward a potential RBA rate cut in May 2025, while also acknowledging an earlier possibility in February. Despite these considerations, the Australian labor market’s strength remains a crucial factor influencing the timing of any monetary policy changes. With current AUD/USD trade hovering near 0.6250, technical analysis suggests an upward correction might be on the horizon, contingent on market conditions.
