The Australian Dollar (AUD) rebounded on Monday, halting its four-day losing streak as the US Dollar (USD) softened. Mixed Chinese economic data and expectations for a Federal Reserve (Fed) rate cut contributed to the movement.


Key Drivers

US Dollar Weakness

  • Fed rate cut expectations: Markets are pricing in a 25-basis-point rate cut at the Fed’s December meeting, with tepid US Treasury yields further weighing on the USD.
  • CME FedWatch Tool: Nearly 100% probability of a quarter-point rate cut.

Chinese Economic Data

  • Retail Sales (YoY): Increased by 3.0% in November, below the expected 4.6% and prior 4.8% growth.
  • Industrial Production: Surpassed expectations, rising 5.4% (forecast: 5.3%).
  • Policy outlook: Chinese authorities pledged fiscal measures to boost domestic consumption amid trade tensions and looming US tariffs.

Australian Economic Influences

  • RBA Dovish Stance:
    • Reserve Bank of Australia (RBA) kept the Official Cash Rate (OCR) unchanged at 4.35% in December.
    • Governor Michele Bullock signaled ongoing inflation risks but stressed a data-driven approach for future rate decisions.
  • Employment Data:
    • Employment Change: +35,600 in November, with the unemployment rate dropping to 3.9% (lowest since March).
  • PMI Decline:
    • Manufacturing PMI: Fell to 48.2 in December from 49.4 in November.
    • Services PMI: Eased to 50.4 from 50.5, while Composite PMI dipped below the neutral level to 49.9.

Technical Analysis: AUD/USD Outlook

The AUD/USD pair trades near 0.6370, recovering slightly from its yearly low of 0.6348. However, the pair remains in a bearish descending channel.

Key Levels

  • Support: Immediate support at 0.6348. A break below this could target the channel’s lower boundary near 0.6180.
  • Resistance:
    • Nine-day EMA at 0.6396.
    • 14-day EMA at 0.6419, aligning with the channel’s upper boundary.

Indicators

  • RSI: The 14-day RSI remains above 30, signaling sustained bearish momentum but avoiding oversold territory.

A breakout above the channel could push AUD/USD toward 0.6687 (eight-week high), while further downside may retest yearly lows.


Broader Context

  • China-Australia Link: China’s economic health heavily impacts the AUD as Australia’s largest trading partner.
  • Geopolitical Tensions: Retaliatory moves by Beijing, including investigations into US firms and export controls on critical minerals, contribute to uncertainty.
  • Global Trade Risks: Potential US tariffs on Chinese goods and supply chain pressures weigh on both Chinese and Australian economies.

The Australian Dollar’s trajectory remains tied to domestic data, RBA policy shifts, and broader global economic trends.

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