Australian Dollar Faces Resistance, U.S. Dollar Strengthens on Job Market Resilience

In recent developments, the Australian dollar has been attempting a short-term bullish reversal around the critical support level near $0.65. An analysis on Friday suggested that a failure to break above the resistance levels at $0.664 to $0.6657 could result in a test of support within the $0.617 to $0.6296 range.

The RBA has already raised interest rates by 425 basis points to a 12-year high of 4.35% since May 2022 to curb inflation. However, the changing global landscape, marked by rapidly falling inflation abroad, has led to expectations of rate cuts by the Federal Reserve and the European Central Bank. In Australia, the slowdown in inflation, particularly in services, is welcomed, but challenges persist, with household budgets under pressure, retail sales reversing in December, and high inflation affecting local consumer spending.

Consumer price inflation in Australia is slowing more than expected, reaching a two-year low in the fourth quarter. The deceleration, especially in core inflation, has prompted markets to advance predictions of rate cuts. The Reserve Bank of Australia, facing a softening labor market, subdued consumer spending, and disinflation in goods and services, is anticipated to keep interest rates unchanged in its upcoming policy meeting. Markets are now confident that the tightening cycle is over, with expectations of the first rate cut in May, a quarter-point cut fully priced for August, and a total easing of 52 basis points for 2024.

On a positive note, Australia registered a larger-than-expected trade surplus in December, attributed to increased offshore demand for fuels and metals. While exports grew, they remained below a mid-2022 peak, and the trade balance, though stabilizing, reflects the impact of slowing economic growth in major export destination China.

In contrast, the U.S. dollar index surged to a seven-week high following robust job growth data for January, exceeding expectations with an addition of 353,000 nonfarm payrolls. This unexpected strength has reduced the likelihood of near-term Federal Reserve interest rate cuts.

While some analysts argue that positive supply shocks and strong hiring might delay rate cuts, others have shifted their forecasts from March to May or June. Traders in rate-future contracts are now pricing in an 80% chance that the Fed will maintain rates in the next month but initiate a series of five quarter-point rate cuts in April-May. The Fed's commitment to progress on inflation without necessarily waiting for a weakened job market adds complexity to the monetary policy outlook.

Furthermore, data on U.S.-made goods orders, manufacturing PMI nearing recovery, and promising economic outlook indicate potential improvements ahead, despite existing constraints from high interest rates on the manufacturing sector. Analysts and policymakers are closely monitoring annual inflation estimates due this Friday for further insights into the economic trajectory.

Data for Technical Analysis (1H) CFD AUD/USD

Resistance : 0.6510, 0.6515, 0.6522

Support : 0.6494, 0.6489, 0.6482

1H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 0.6484 - 0.6494 is touched, but the support at 0.6494 cannot be broken, the TP may be set around 0.6515 and the SL around 0.6479, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 0.6510 - 0.6520, TP may be set around 0.6535 and SL around 0.6489, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 0.6510 - 0.6520 is touched, but the resistance at 0.6510 cannot be broken, the TP may be set around 0.6494 and the SL around 0.6525, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 0.6484 - 0.6494, TP may be set around 0.6475 and SL around 0.6515, or up to the risk appetite.       

Pivot Points Feb 5, 2024 01:52AM GMT