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Australian Dollar Weakens as US Dollar Recovers Ahead of Key Retail Sales Data

GBP/JPY Holds Near 195.50 as Markets Eye UK Labor Data and BoJ Policy

Australian Dollar Weakens as US Dollar Recovers Ahead of Key Retail Sales Data

The Australian Dollar (AUD) remains under pressure, reflecting subdued domestic consumer sentiment and broader market caution ahead of pivotal economic events. The currency struggles near 0.6370 on Tuesday as traders weigh weak domestic data, developments in China, and the upcoming US Federal Reserve decision.

Key Australian Data and Domestic Sentiment

Australia’s Westpac Consumer Confidence index dropped 2% in December to 92.8, reversing November’s 5.3% gain. This highlights growing pessimism among consumers about the economic outlook. Additionally, the Reserve Bank of Australia (RBA) kept its Official Cash Rate (OCR) steady at 4.35% in its final meeting for the year. RBA Governor Michele Bullock indicated that inflation risks have eased but remain a concern, emphasizing a data-dependent approach to future policy.

Preliminary December PMI data also painted a mixed picture. The Judo Bank Manufacturing PMI fell to 48.2 from 49.4 in November, while the Services PMI eased slightly to 50.4. The Composite PMI slipped below the 50 threshold to 49.9, signaling contraction in overall economic activity.

China’s Economic Dynamics and Impact on AUD

As Australia’s largest trading partner, developments in China significantly affect the Australian Dollar. China’s Retail Sales (YoY) rose 3.0% in November, falling short of the expected 4.6%. Meanwhile, Industrial Production grew by 5.4%, exceeding expectations of 5.3%. However, the Chinese economy faces challenges, including a record $45.7 billion net capital outflow in November and uncertainty surrounding fiscal support measures.

Chinese authorities have pledged to expand domestic demand and boost consumption, but traders remain skeptical due to a lack of concrete policy details. Geopolitical tensions, including retaliatory trade measures against US sanctions, further weigh on market sentiment.

US Dollar Dynamics and Upcoming Fed Decision

The US Dollar recovers modestly ahead of critical November retail sales data and the Federal Reserve’s interest rate decision. Market expectations are almost fully pricing in a 25 basis point rate cut at the Fed’s December meeting, according to the CME FedWatch tool.

Recent US PMI data showed mixed results:

  • Composite PMI: Rose to 56.6 in December from 54.9.
  • Services PMI: Improved to 58.5 from 56.1.
  • Manufacturing PMI: Declined to 48.3 from 49.7.

Investors will closely monitor Fed Chair Jerome Powell’s press conference and the Summary of Economic Projections (dot-plot) for hints about 2025 rate policy.

Technical Outlook for AUD/USD

The AUD/USD pair continues to trade near 0.6370, hovering around a yearly low of 0.6348. Key technical indicators suggest a bearish bias:

    • Support Levels: Immediate support lies at the 0.6348 low. A break below could push the pair toward the descending channel’s lower boundary near 0.6170.
    • Resistance Levels: Initial resistance is at the nine-day EMA of 0.6390, followed by the 14-day EMA at 0.6412. A breakout above these levels could target 0.6687, the eight-week high.
  • Momentum: The 14-day Relative Strength Index (RSI) remains above 30, indicating persistent bearish momentum.