Australian Dollar trims intraday gains as US Dollar improves, focus on Aussie CPI

• Australian Dollar loses ground after recent gains as the US Dollar improves.
• Australian Retail Sales increased to 2.0% from the previous 0.2% decline.
• Improved risk appetite weakens the Greenback.
• Atlanta Fed President Raphael W. Bostic expects two quarter-point cuts by the end of 2024.

The Australian Dollar (AUD) trims its intraday gains as the US Dollar attempts to recover its recent losses on Tuesday. However, the AUD/USD pair seems to be benefiting from improved risk appetite, driven in part by comments from US Federal Reserve (Fed) members speculating about potential interest rate cuts by the end of 2024. Additionally, the upbeat economic data from Australia could reinforce the strength of the Aussie Dollar (AUD).

Australia’s Bureau of Statistics revealed the seasonally adjusted Retail Sales (MoM) for November, which rose by 2.0% instead of the expected 1.2%, swinging from the previous 0.2% decline. Furthermore, the monthly Building Permits came to 1.6% from 7.5% prior against the expected decline of 2.0%.

Traders will observe the Monthly Consumer Price Index data on Wednesday to gain more impetus on the Reserve Bank of Australia’s (RBA) interest rate trajectory. However, RBA is highly anticipated to refrain from rate cuts in its upcoming February meeting.

The US Dollar Index (DXY) faces challegnes due to the decline in US Treasury yields. Additionally, the softer comments from the Fed members triggered the risk-on market mood, which put pressure on the US Dollar (USD).  

Atlanta Fed President Raphael W. Bostic shared insights on the 2024 economic outlook during an appearance at the Atlanta Rotary Club on Monday. Notably, he mentioned that inflation has declined more than initially anticipated and expressed the view of expecting two quarter-point cuts by the end of 2024. Bostic conveyed comfort with the current rate level and emphasized the importance of allowing the Fed’s tight policy time to work on cooling off inflation. He also mentioned that the US is on the path to achieving 2% inflation, and the goal is to remain on that path.

US Fed Governor Michelle W. Bowman addressed the South Carolina Bankers Association 2024 Community Bankers Conference on Monday. She mentioned that inflation could fall further with the policy rate held steady for some time. Bowman expressed the view that the current policy stance appears sufficiently restrictive, but it might eventually become appropriate to lower the Fed’s policy rate if inflation falls closer to the 2% target.

Daily Digest Market Movers: Australian Dollar rises on improved risk appetite

• Australia Judo Bank Services PMI reported a reading of 47.1, falling short of market expectations that it would remain consistent at 47.6. The Composite PMI decreased to 46.9 from the previous figure of 47.4.
• Australia’s Judo Bank Manufacturing PMI indicated a modest contraction in manufacturing activity, declining to 47.6 in December from the previous reading of 47.8.
• Chinese wealth manager Zhongzhi Enterprise Group has filed for bankruptcy liquidation, facing a staggering $64 billion in liabilities.
• Dallas Fed President Lorie K. Logan, provided insights on Saturday, suggesting that a rate hike should not be ruled out given the recent easing in financial conditions. She emphasized the importance of avoiding premature easing, which could stimulate demand. Maintaining sufficiently tight financial conditions is seen as crucial to managing the risk of inflation picking back up and potentially reversing progress.
• US Nonfarm Payrolls rose to 216K in December, showing an improvement from the 173K reported in November. This figure surpassed the market expectation, which anticipated a rise of 170K.
• US Average Hourly Earnings (YoY) improved to 4.1% from 4.0% prior. Meanwhile, the monthly index remained consistent at 0.4% against the expected decline of 0.3%.
• US ISM Services Purchasing Managers Index (PMI) came in at 50.6 against the expected 52.6 and 52.7 prior. While the Services Employment Index reduced to 43.3 from the previous reading of 50.7.

Technical Analysis: Australian Dollar edges lower to 0.6700 psychological level

The Australian Dollar trades near 0.6710 on Tuesday. The AUD/USD pair could face a key resistance at the seven-day Exponential Moving Average (EMA) of 0.6737 before the major level at the 0.6750 level. A successful breakthrough above the latter could pave the way for the AUD/USD pair to challenge the psychological barrier at 0.6800. On the downside, the 23.6% Fibonacci retracement at 0.6725 acted as an immediate support followed by the psychological support at 0.6700. A break below the psychological support could push the AUD/USD pair to retest the major support at 0.6650 and the 38.2% Fibonacci retracement level at 0.6637.

AUD/USD: Daily Chart