Australian Dollar remains steady following the release of Chinese key data

• The Australian Dollar holds ground after mixed figures from China.
• China’s Retail Sales (YoY) rose 3.0% in November, falling short of the expected 4.6% and previous 4.8% readings.
• The US Dollar remains subdued as the Fed is expected to deliver a 25 basis point rate cut on Wednesday.

The Australian Dollar (AUD) halts its four-day losing streak on Monday as the US Dollar (USD) edges lower amid tepid US Treasury yields ahead of the Federal Reserve’s (Fed) interest rate decision set for Wednesday.

The Fed is widely expected to announce a 25 basis point rate cut in its final monetary policy meeting of 2024. According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed’s December meeting.

China’s Retail Sales (YoY) rose 3.0% in November, against its expected 4.6% and previous 4.8% readings. Meanwhile, annual Industrial Production increased by 5.4%, exceeding the market consensus of a 5.3% rise.

Chinese authorities, led by President Xi Jinping, have pledged to raise the fiscal deficit target next year, shifting policy focus to consumption to boost the economy amid looming 10% US tariffs threatening exports. The lack of concrete details on fiscal support has put downward pressure on the AUD, given China’s status as Australia’s largest trading partner.

Australian Dollar receives downward pressure from the RBA’s dovish stance

• The Aussie Dollar faced additional challenges due to the Reserve Bank of Australia’s (RBA) dovish stance. Traders are increasing their bets that the RBA will cut interest rates sooner and more significantly than initially expected. However, future decisions will be data-driven, with evolving risk assessments guiding the RBA’s approach.
• The preliminary Australia’s Judo Bank Manufacturing Purchasing Managers Index (PMI) declined to 48.2 in December from 49.4 in November. Meanwhile, the Services PMI eased to 50.4 in December from the previous reading of 50.5. The Composite PMI dropped to 49.9 in December versus 50.2 prior.
• Beijing has already begun retaliation against Trump trade sanctions, launching a probe into Nvidia, threatening to blacklist a US apparel company, blocking the export of critical minerals to the United States, and tightening the supply chain for drones.
• The seasonally adjusted Employment Change rose by 35,600, bringing the total number of employed people to 14,535,500 in November. Meanwhile, the Unemployment Rate dropped to 3.9%, the lowest since March, lower than market estimates of 4.2%.
• The US PPI jumped 0.4% MoM in November, the largest gain since June, after an upwardly revised 0.3% increase in October. This reading was better than the 0.2% expected.
• The RBA kept the Official Cash Rate (OCR) unchanged at 4.35% in its final policy meeting in December. RBA Governor Michele Bullock highlighted that while upside inflation risks have eased, they persist and require ongoing vigilance. The RBA will closely monitor all economic data, including employment figures, to guide future policy decisions.

Technical Analysis: Australian Dollar rebounds from 0.6350 near yearly lows

AUD/USD hovers near 0.6370 on Monday. The daily chart analysis indicates a prevailing bearish bias as the pair moves downwards within a descending channel pattern. Additionally, the 14-day Relative Strength Index (RSI) also remains above the 30 level, indicating sustained bearish momentum.

On the downside, the yearly low of 0.6348, last seen on August 5, serves as immediate support. A break below this level could put downward pressure on the AUD/USD pair to approach the descending channel’s lower boundary around the 0.6180 level.

The AUD/USD pair faces initial resistance around the nine-day Exponential Moving Average (EMA) at 0.6396, followed by the 14-day EMA at 0.6419, which is aligned with the descending channel’s upper boundary. A decisive breakout above this channel could drive the pair toward the eight-week high of 0.6687.

AUD/USD: Daily Chart