The Australian Dollar (AUD) is facing continued downward pressure against the US Dollar (USD) on Wednesday, grappling with instability in the foreign exchange market. In the previous session, the AUD/USD pair witnessed a decline, influenced by a stronger US Dollar driven by positive US Treasury yields. Market sentiment has shifted with reduced speculation on potential rate cuts by the US Federal Reserve (Fed). Ongoing tensions in the Middle East and a dip in commodity prices, possibly indicating concerns about weakened demand from China, have further weighed on the Australian Dollar (AUD).
Australia’s Consumer Confidence data for January revealed a contraction, contributing to the perception that the Reserve Bank of Australia (RBA) may not implement further policy tightening in its upcoming February board meeting. This sentiment is adding pressure to the AUD/USD pair.
China’s fourth-quarter annual Gross Domestic Product (GDP) grew by 5.2%, slightly below the expected 5.3%. December’s Industrial Production (YoY) exceeded expectations at 6.8%, compared to the anticipated 6.6%. However, Retail Sales year-over-year fell short at 7.4%, missing the market consensus of 8.0%.
In December, both Chinese consumer prices and producer prices experienced a decline for the third consecutive month, indicating persistent deflationary pressures in the country. Premier Li Qiang, speaking at the World Economic Forum in Davos, mentioned that China’s economy grew by approximately 5.2% in 2023, slightly surpassing the official target set by Beijing.
The US Dollar Index (DXY) is on a four-day winning streak, supported by recent statements from Federal Reserve officials. Fed Governor Christopher Waller cautioned against prematurely outlining plans for rate cuts despite positive developments in the inflation outlook. Atlanta Fed President Raphael Bostic also warned that early interest rate cuts might lead to fluctuations in inflation, expecting the slowdown in inflation towards the central bank’s 2.0% target to ease in the coming months.
The US NY Empire State Manufacturing Index experienced a significant decline, dropping to 43.7 in January, well below the expected decrease of 5. Investors are closely watching the upcoming US Retail Sales data for December, anticipating insights into consumer spending patterns.
As of Wednesday, the Australian Dollar traded near 0.6590, approaching the immediate psychological resistance level at 0.6600. A breakthrough could propel the AUD/USD pair towards the major level at 0.6650, followed by the 14-day Exponential Moving Average (EMA) at 0.6680 and the psychological level at 0.6700. Conversely, the 50% retracement level at 0.6566 stands as a crucial support level, followed by the major support at 0.6550.
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