The AUD/USD currency pair remains largely stagnant as traders adopt a cautious approach in light of a dovish tone from the Reserve Bank of Australia (RBA) and ongoing economic challenges in China. On the flip side, the US dollar is bolstered by a hawkish shift from the Federal Reserve, leading to increased demand and rising US bond yields.
Currently, the AUD/USD pair is struggling to maintain upward momentum, despite a slight recovery observed in recent days. It continues to hover near the lows reached last week, marking the lowest levels since October 2022. Concerns about China’s economic stability are threatening the Australian dollar, exacerbated by growing speculation that the RBA may implement interest rate cuts sooner than anticipated next year. This shift in the central bank’s stance signals easing inflationary pressures, which could further weigh on the AUD.
The US dollar has recently receded from a two-year peak following data from the US Personal Consumption Expenditure (PCE) Price Index, which was released Friday. The index indicated a modest increase in annual inflation, reaching 2.4% in November compared to 2.3% the month prior. However, the core PCE, stripped of food and energy volatility, matched October’s rate at 2.8%, falling short of expectations. These developments momentarily impacted the dollar, but a more hawkish Fed outlook swiftly reversed the trend, supporting the greenback.
The Fed’s decision to lower its benchmark rate for the third time since September, coupled with a deliberately slower pace for future cuts, has driven US Treasury yields to their highest levels in over six months. With ongoing support for the US dollar, the outlook for the AUD/USD pair appears increasingly bearish. Despite market optimism regarding potential fiscal stimulus from China, which could support the Australian dollar, any upward movement would likely be seized upon as a selling opportunity.
A technical rebound seen in the AUD/USD, attributed to an oversold condition, suggests potential short-term gains. However, the outlook indicates the pair is likely to face downward pressure, with key resistance at the 0.6300 level. A breach beneath the current lower channel boundary near 0.6235 could open up further declines, potentially driving the pair towards critical support levels around 0.6200 and the psychologically significant 0.6000 level.
