Australian Consumer Confidence Falls in December Amid Economic Uncertainty

Australian consumer sentiment in December weakened amid concerns about the economic outlook, despite an improvement in household financial conditions. The Westpac-Melbourne Institute Consumer Sentiment Index fell 2% to 92.8, reversing gains from recent months. While stable interest rates and fiscal support bolstered confidence in current finances, future economic expectations deteriorated sharply. Key sub-indices for the next 12 months and five years dropped by 9.6% and 7.9%, respectively, reflecting concerns about weak GDP growth, flat private demand, and global uncertainties.

In contrast, the measure of family finances compared to a year ago improved, reaching its highest since early 2022. Rising wealth and moderating inflation have begun alleviating the shock of price surges. However, pessimism persists, particularly among mortgage holders, amid doubts over future rate cuts. The Reserve Bank of Australia (RBA) is expected to hold interest rates steady until May.

Australia's labor market showed resilience in November, with employment rising by 35,600, lowering the unemployment rate to 3.9%. This strength, however, is seen as part of a normalization trend rather than renewed labor market tightening. Participation rates dipped slightly, and underutilization measures remain historically low. The RBA remains cautious, balancing labor market tightness with subdued wage growth, suggesting limited inflation risks.

Broader economic conditions remain mixed. Business activity in November hit its lowest since 2020, driven by weak retail and manufacturing sectors. Public spending continues to prop up the economy, preventing a technical recession. The government faces growing deficits, citing unavoidable spending on health and welfare.

The Federal Reserve cut its benchmark interest rate by 25 basis points to 4.25%-4.50%, marking its third cut this year. However, the Fed adopted a cautious stance, signaling a slower path of rate cuts in the future. Policymakers now project two rate cuts in 2025, compared to the four anticipated in September, with rates expected to decline to 3.9% next year and 3.4% by 2026. The long-term neutral rate estimate was also revised slightly upward to 3.0%.

The decision comes amid broader economic challenges, including persistent inflation and the potential impact of policy changes under the incoming administration. The Fed’s cautious tone jolted markets, strengthening the U.S. dollar and leading to higher yields on 10-year Treasury notes. Analysts interpret the guidance as a signal of a likely pause in rate adjustments for early 2025.

Economic growth estimates have been revised upward, reflecting stronger GDP growth at 2.1% in 2025. However, inflation remains a concern, with core personal consumption expenditures inflation projected at 2.5% in 2025, delaying expectations for achieving price stability.

Fed Chair Jerome Powell highlighted stronger-than-expected economic growth in late 2024, resilience in the labor market, and inflation uncertainties as reasons for the more measured approach. Inflation is now forecast to reach the Fed’s 2% target by 2027, later than previously projected, while the labor market remains robust, with unemployment expected to stabilize around 4.3% through 2027. This may result in the AUD/USD pair trading within the current range, with an increased likelihood of testing the upper bound during this period.

Data for Technical Analysis (30Min) CFD AUD/USD

Resistance : 0.6233, 0.6235, 0.6238

Support : 0.6225, 0.6220, 0.6223

30Min Outlook

Source: TradingView

Buy/Long 1 If the support at the price range 0.6217 - 0.6225 is touched, but the support at 0.6225 cannot be broken, the TP may be set around 0.6235 and the SL around 0.6213, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 0.6233 - 0.6241, TP may be set around 0.6244 and SL around 0.6221, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 0.6233 - 0.6241 is touched, but the resistance at 0.6233 cannot be broken, the TP may be set around 0.6225 and the SL around 0.6245, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 0.6217 - 0.6225, TP may be set around 0.6212 and SL around 0.6237, or up to the risk appetite.       

Pivot Points Dec 19, 2024 03:05AM GMT