The Reserve Bank of Australia may cut interest rates in February.

The Australian dollar continues to weaken, nearing a two-year low, as the US dollar strengthens rapidly amid negative sentiment toward the monetary policy of the Reserve Bank of Australia (RBA). Expectations are mounting that the RBA will lower interest rates soon, possibly in February, citing signs of easing inflation domestically. Currently, the market forecasts a 75% chance of a rate cut next month, a significant increase from 50% just a few days prior. Furthermore, recent economic data from earlier this week revealed that core inflation slowed to 3.2% in November, down from 3.5% in October.

The services sector PMI rose to 50.8 in December, with the latest figures marking 11 consecutive months of expansion. This growth was supported by robust domestic demand, while exports increased for the first time in four months. However, employment declined for the first time since 2021 due to cost pressures, particularly rapidly rising wages. Additionally, raw material costs rose to a three-month high, leading to higher product prices as businesses passed on increased costs to consumers.

Australia's Consumer Price Index (CPI) rose 2.3% in November, surpassing market expectations of 2.2% and increasing from 2.1% in the previous two months. This marks the highest figure since August, partly due to the end of government energy subsidies. However, the latest figures remain within the RBA’s target range of 2-3%. Electricity costs fell slightly from the previous month, as did vehicle fuel prices, while food and beverage prices increased by 6.7%.

Australia's goods exports increased by 4.8% from the previous month to a nine-month high of AUD 43.82 billion in November, driven by a 9.2% rise in grain and grain products, as well as meat and meat-related products. Additionally, exports of metal ores saw strong growth, with exports to India surging the most at 39.9%, followed by Japan at 17.3%.

Retail sales in Australia rose by 0.8% month-on-month in November, rebounding from a 0.5% decline in the previous month. This marks eight consecutive months of retail sales growth, with the highest rate since January. The growth was largely supported by Black Friday discounts, boosting retail sectors including clothing, footwear, and personal accessories, as well as the expansion of café and restaurant services.

Australia’s 10-year government bond yields climbed to 4.59% as investors reassessed domestic economic data following sustained retail sales growth. Additionally, the country reported its highest trade surplus in 10 months in November, as exports outpaced imports. Meanwhile, headline inflation rose to 2.3% in November from 2.1%, increasing the likelihood of the RBA cutting interest rates further in the coming months. The cash rate is expected to drop to around 3.60% by year-end.

Techical analysis data (5H)

Resistance: 1.6307, 1.6366, 1.6443

Source: Investing.com

Buy/Long 1: If the price touches support in the price range of 1.6094 - 1.6171 but cannot break the support at 1.6171, you may set a TP at approximately 1.6366 and SL at around 1.6034 or according to your acceptable risk.

Buy/Long 2: If the price breaks the resistance in the price range of 1.6307 - 1.6366, you may set a TP at approximately 1.6443 and SL at around 1.6094 or according to your acceptable risk.

Sell/Short 1: If the price touches resistance in the price range of 1.6307 - 1.6366 but cannot break the resistance at 1.6307, you may set a TP at approximately 1.6094 and SL at around 1.6443 or according to your acceptable risk.

Sell/Short 2: If the price breaks the support in the price range of 1.6094 - 1.6171, you may set a TP at approximately 1.6034 and SL at around 1.6366 or according to your acceptable risk.

Pivot point January 11, 2025 09:59 AM. GMT+7