Australian Dollar Steadies as US Dollar Slips; US PPI Data in Focus

The Australian Dollar (AUD) stabilized on Thursday, halting a two-day losing streak against the US Dollar (USD). The AUD found support following the release of mixed domestic employment data. Australia’s seasonally adjusted Employment Change showed an increase of 35,600 jobs in November, surpassing forecasts of 25,000 and October’s 12,100. Meanwhile, the Unemployment Rate dropped to 3.9%, its lowest since March, beating expectations of 4.2%.

The AUD/USD pair has faced challenges amid lingering USD strength following Wednesday’s US inflation data. The US Consumer Price Index (CPI) rose 2.7% year-over-year in November, up from 2.6% in October, with a monthly increase of 0.3%, matching expectations. Core CPI, excluding food and energy, also met forecasts, rising 3.3% YoY and 0.3% MoM.

Despite these figures, the inflation data failed to shift expectations for a Federal Reserve (Fed) rate cut at its December 18 meeting. The CME FedWatch Tool indicates a 99% probability of a 25-basis-point rate reduction. Markets now await the US November Producer Price Index (PPI), due later Thursday, for further direction.

External Pressures and China Developments

The AUD faced headwinds from uncertainties surrounding US-China trade tensions. Reports suggest that China may allow its Yuan to depreciate further in response to anticipated US tariff hikes. Chinese President Xi Jinping reiterated China’s confidence in achieving economic targets and emphasized the importance of global cooperation over trade or tariff wars.

China’s Trade Balance (CNY) increased to CNY 692.8 billion in November, driven by 1.5% YoY export growth, albeit lower than October’s 11.2% increase. Imports rose 1.2% YoY, recovering from a 3.7% decline.

Domestic Monetary Policy and Growth Concerns

The Reserve Bank of Australia (RBA) kept its Official Cash Rate (OCR) steady at 4.35% in its December policy meeting. RBA Governor Michele Bullock noted easing inflation risks but stressed ongoing vigilance. Australia’s GDP growth for Q3 slowed to 0.3%, missing market expectations of 0.4%, prompting speculation of a potential RBA rate cut by April 2024.

The Australian Dollar gained some support from improved sentiment surrounding China, Australia’s largest trading partner. Chinese policymakers announced plans for fiscal stimulus and monetary easing in 2024 to boost domestic consumption, offsetting weak Chinese CPI data, which fell 0.6% in November.

AUD/USD Technical Outlook

AUD/USD trades near 0.6410, encountering resistance at the nine-day Exponential Moving Average (EMA) at 0.6422. The pair remains confined within a descending channel, with the 14-day Relative Strength Index (RSI) below 50, signaling persistent bearish momentum.

Key support lies at the yearly low of 0.6348, last tested on August 5. A break below this level could reinforce the bearish trend, targeting the channel’s lower boundary around 0.6200. On the upside, a breakout above the upper boundary at 0.6440 may signal a rally toward the seven-week high of 0.6687.

Outlook

The Australian Dollar’s trajectory will depend on developments in US economic data, particularly the PPI, and updates on China’s fiscal and monetary policies. While technical indicators show near-term bearish risks, broader market sentiment and external catalysts could shape the AUD/USD pair’s next moves.