AUD/USD Price Analysis – Dec 28, 2023

Daily Price Outlook

The Australian Dollar (AUD) is on an upward trajectory, with the AUD/USD pair advancing as the US Dollar (USD) dips below the 101.00 mark. This movement is largely attributed to subdued US Treasury yields and improved risk appetite, spurred by expectations of a dovish Federal Reserve (Fed) in early 2024.

RBA Maintains Hawkish Stance Amid Resilient Economy

Australia’s economic indicators, particularly inflation and housing prices, are showing signs of resilience. This robustness is influencing the Reserve Bank of Australia (RBA) to maintain a hawkish approach, with inflation forecasts nudging the upper end of the 2-3% target by 2025. The RBA, in its recent Meeting Minutes, highlighted the significance of additional data analysis in making future interest rate decisions, leading to expectations of no rate cut in the upcoming February meeting.

China’s Policy Measures to Boost Domestic Demand

China’s National Development and Reform Commission's (NDRC) Chairman, Zheng Shanjie, reaffirmed the country's commitment to familiar policy measures aimed at expanding domestic demand. This strategy is designed to foster a quick economic recovery and promote stable growth, which could indirectly influence the AUD due to Australia's close trade ties with China.

US Dollar Weakness Amid Fed Rate Cut Prospects

The US Dollar Index (DXY) continues to weaken as markets anticipate potential rate cuts by the Fed. The Fed’s December policy pivot hinted at the possibility of up to three rate reductions by the end of 2024, totaling 75 basis points, fueling this expectation.

US Manufacturing and Housing Data Influence Market Sentiment

The US Richmond Fed Manufacturing Index’s unexpected decline in December, along with the contraction in the US Housing Price Index, is reshaping market perceptions of economic conditions. These developments, coupled with Thursday’s upcoming Initial Jobless Claims and Pending Home Sales data, are critical for market watchers.

Australian and US Economic Data Overview

In Australia, the RBA Private Sector Credit showed a modest increase in November, while the Year-over-Year data reflected a slowdown. In the US, the Core Personal Consumption Expenditures - Price Index grew slower than expected in November, and the Q3 Gross Domestic Product was slightly below forecasts. These data points are vital in assessing the health of both economies and the potential directions of their respective central banks.

Global Economic Landscape and Currency Movements

As the global economic landscape continues to evolve, with central banks' policy decisions and economic indicators playing pivotal roles, the AUD/USD pair's movements will be closely watched. The interplay between the Fed’s potential dovish stance and the RBA's hawkish outlook, along with China’s economic measures, creates a complex environment that investors must navigate carefully.

AUD/USD - Technical Anaylsis

In the currency market, the Australian Dollar (AUD/USD) is exhibiting signs of strength, marking an upward trend. As of December 28, the pair is trading at 0.68568, registering a gain of 0.11%. This upward trajectory positions the AUD/USD pair within a key technical framework, providing insights into potential future movements.

The immediate resistance level for the pair is at 0.6856, followed by further resistance points at 0.6909 and 0.6990. These levels will be crucial to watch as they could cap any further gains. On the downside, the pair finds immediate support at 0.6713, with subsequent support levels at 0.6636 and 0.6586. These support levels will play a key role in providing a safety net against any potential downward moves.

The Relative Strength Index (RSI) for AUD/USD stands at 67, indicating a bullish market sentiment without reaching overbought territory. This suggests that there might still be room for further appreciation. The Moving Average Convergence Divergence (MACD) shows a value of 0.0001, marginally above its signal line at 0.003, hinting at a potential increase in upward momentum. Additionally, the pair is trading above its 50-Day Exponential Moving Average (EMA) of 0.6842, reinforcing the current bullish trend.

In conclusion, the overall trend for the AUD/USD pair appears bullish above the $0.6785 level. If the pair sustains above this level, it could signal further upward movement in the short term, potentially testing higher resistance levels.

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