The Australian Dollar experienced a decline against the US Dollar on Thursday, dropping roughly 0.34% to around 0.6170. This fall can be attributed to the strengthening of the US Dollar, which has gained traction amid ongoing concerns about inflation in the United States. Investors are particularly focused on the upcoming Nonfarm Payrolls (NFP) report for December, which is expected to provide insights into the Federal Reserve’s potential interest rate decisions.
Recent economic data has shown the Australian economy facing challenges, particularly reflected in moderate growth in retail sales. In November, growth was reported at 0.8%, which fell short of the anticipated 1% and slightly exceeded October’s 0.5% increase. This weaker-than-expected performance has led market participants to reduce their expectations regarding the Reserve Bank of Australia’s (RBA) monetary policy, with many now anticipating a 25-basis point rate cut during the April meeting.
Adding to the difficulties for the Australian Dollar, inflation figures from China revealed that the Consumer Price Index (CPI) grew only 0.1% year-on-year in December, in line with expectations but a slowdown from the previous month’s 0.2%. As Australia’s largest trading partner, underwhelming inflation data from China creates further pressure on the AUD.
Conversely, the US Dollar maintains its strength, boosted by expectations surrounding pro-growth economic policies anticipated under the incoming administration. This has led to speculation that the Federal Reserve will uphold a hawkish monetary policy stance. Minutes from the Federal Open Market Committee meeting in December highlighted concerns regarding potential shifts that could hinder progress toward the Fed’s inflation target of 2%.
The technical outlook for the AUD/USD pair suggests continued bearish momentum. The Relative Strength Index (RSI) has fallen to 35, indicating a negative trend, while the Moving Average Convergence Divergence (MACD) shows a decrease in momentum. The pair faces immediate support at 0.6170, with further declines possible if this level is breached. Resistance levels are found at 0.6230 and the 20-day Simple Moving Average, where the AUD/USD must regain strength to avoid further downward pressure.
