Australian Dollar’s Gains Reduced Amid Strengthening US Dollar, Attention on Australian CPI

The Australian Dollar (AUD) slightly reduced its intraday gains as the US Dollar began to recover its recent losses on Tuesday. The AUD/USD pair, however, is still finding support due to a general improvement in risk sentiment. This shift in mood is partly influenced by remarks from members of the US Federal Reserve (Fed), who have hinted at the possibility of interest rate cuts by the end of 2024. Further buoying the Aussie Dollar is Australia’s positive economic data.

Recently released figures from the Australian Bureau of Statistics showed an encouraging trend. The seasonally adjusted Retail Sales for November increased by 2.0%, surpassing the forecasted 1.2% rise and recovering from a previous decline of 0.2%. Additionally, Building Permits for the month showed a positive change, reporting a 1.6% increase compared to the earlier 7.5%, against the anticipated 2.0% decrease. These developments come ahead of Wednesday’s release of the Monthly Consumer Price Index data, which is expected to provide further insights into the Reserve Bank of Australia’s (RBA) policy direction. Despite this positive data, the RBA is not expected to cut rates in its forthcoming February meeting.

In contrast, the US Dollar Index (DXY) is struggling due to a decrease in US Treasury yields. The risk-on market sentiment has been further fueled by the Fed members’ dovish comments, exerting pressure on the US Dollar.

Atlanta Fed President Raphael W. Bostic, during a presentation at the Atlanta Rotary Club, shared his outlook for 2024. He noted that inflation has been receding faster than anticipated, suggesting the likelihood of two quarter-point reductions in interest rates by the end of 2024. Bostic highlighted the need to allow time for the Fed’s current policies to effectively temper inflation. Similarly, US Fed Governor Michelle W. Bowman, speaking at the South Carolina Bankers Association 2024 Community Bankers Conference, commented that maintaining the current policy rate might lead to a further decline in inflation. Bowman indicated that if inflation approaches the 2% target, it might become suitable to lower the Fed’s policy rate.