The Australian Dollar (AUD) has experienced a notable rebound after hitting a low of 0.6131, marking its weakest point since April 2020. This recovery is attributed largely to buoyant commodity prices, which have boosted demand for the AUD. Conversely, the US Dollar (USD) remains strong amid rising expectations that the Federal Reserve will hold interest rates steady in January.
On Tuesday, the AUD/USD pair continued to gain traction for a second consecutive day, driven by supportive trends in commodity markets. Simultaneously, the S&P/ASX 200 Index saw a modest increase of 0.2%, closing around 8,210 and breaking a three-day decline. Mining and energy sectors were pivotal in this recovery, as Australian equities mirrored positive movement seen on Wall Street, where investors began diversifying their focus beyond technology giants.
Despite the recent gains, there are concerns as Australia’s Westpac Consumer Confidence Index reported a 0.7% decline in January 2025, underscoring ongoing consumer pessimism. Additionally, market participants are pricing in a significant possibility of a 75% chance that the Reserve Bank of Australia (RBA) may implement a rate cut next month. Investors are particularly keen on upcoming employment data, which could offer insights into the RBA’s future policy decisions.
Support for the AUD is also bolstered by China’s stimulus measures, given Australia’s close economic ties with the Asian giant. Any shifts in China’s economic landscape are likely to have a pronounced impact on Australian markets.
Meanwhile, the US Dollar Index is hovering around 109.60, reflecting its strength following robust labor market data from the US. Nonfarm Payrolls data for December revealed an impressive increase of 256,000 jobs, which surpassed expectations and solidified the Fed’s outlook of maintaining rates.
In the backdrop, the People’s Bank of China announced measures to strengthen the Yuan and enhance liquidity, reaffirming its commitment to stimulate the economy. As the AUD/USD pair trades at approximately 0.6190, its outlook remains bearish, constrained within a descending channel, with immediate resistance encountered at the nine-day Exponential Moving Average (EMA).
