The Reserve Bank of Australia has not yet been able to set a clear date for an interest rate cut.

The Australian dollar weakened for the second consecutive day as the US dollar gained strength, bolstered by new tariffs announced by US President Donald Trump. These tariffs target key imports, especially semiconductors and various metals, aiming to boost domestic production. Additionally, concerns about the Chinese AI model, Deepseek—a startup challenging US tech giants—have influenced market sentiment. However, the Australian dollar continues to find medium-term support due to improved business confidence in Australia. Investors are also focused on the upcoming inflation figures, which have sparked expectations that the Reserve Bank of Australia (RBA) may cut interest rates in February.

Australia’s business confidence index rose slightly to -2 in December, up from -3 in the previous month. Despite this being the second month of negative confidence, it indicates improving economic trends. Domestic economic growth has been strongly supported by robust sales, leading to higher company profits. Additionally, an increase in pre-orders has slightly raised profit forecasts for the next quarter. Employment growth, coupled with relatively moderate labor cost increases, has positively impacted various industries, particularly retail, which saw growth for the first time since November 2023. Alan Oster, NAB’s chief economist, remarked that "The rise in business confidence highlights the resilience of Australian businesses in adapting to challenges, especially after last year’s interest rate hikes."

Australia's manufacturing PMI rose to 49.8 in January from 47.8 in December. While manufacturing activity still reflects contraction, there is optimism for near-term expansion, with some manufacturers reporting improved business conditions. However, export orders and new orders continue to decline, leading to reduced activity in emerging businesses. The manufacturing sector still faces significant challenges, particularly cost pressures stemming from higher raw material, energy, and wage costs. To manage costs, some businesses have resorted to layoffs, which has, in turn, driven up product prices.

Australia’s leading economic indicators remained steady in December, while the growth outlook for the next 3–9 months fell to 0.25. GDP is expected to grow gradually in 2025, potentially reaching 2.2%, after a 0.8% increase in September 2024. However, Matthew Hassan, Australia’s head of macroeconomic forecasting, predicts that the RBA will maintain interest rates in February before implementing the first rate cut in May.

The yield on 10-year Australian government bonds surged to 4.48% as business activity rebounded in December, supported by strong Christmas demand that boosted the retail sector. Nevertheless, overall confidence remains subdued due to high costs faced by businesses. Investors await the quarterly inflation announcement on Wednesday, which could shape the RBA’s rate-cut outlook. Inflation for Q4 is expected to drop to 2.5%, the lowest since 2021, while core inflation is forecast to decline to 3.3%, reinforcing expectations of an RBA rate cut. Current estimates suggest an 84% probability that the central bank will lower rates.

Techical analysis data (5H)

Resistance: 1.6023, 1.6038, 1.6061

Source: Investing.com

Buy/Long 1: If the price touches support in the price range of 1.5962 - 1.5985 but cannot break the support at 1.5985, you may set a TP at approximately 1.6038 and SL at around 1.5946 or according to your acceptable risk.

Buy/Long 2: If the price breaks the resistance in the price range of 1.6023 - 1.6038, you may set a TP at approximately 1.6061 and SL at around 1.5962 or according to your acceptable risk.

Sell/Short 1: If the price touches resistance in the price range of 1.6023 - 1.6038 but cannot break the resistance at 1.6023, you may set a TP at approximately 1.5962 and SL at around 1.6061 or according to your acceptable risk.

Sell/Short 2: If the price breaks the support in the price range of 1.5962 - 1.5985, you may set a TP at approximately 1.5946 and SL at around 1.6038 or according to your acceptable risk.

Pivot point January 28, 2025 10:17 AM. GMT+7