Australian Dollar retraces recent gains after Aussie CPI, RBNZ interest rate decision

• Australian Dollar loses ground in response to cooler-than-expected inflation data.
• Australian Consumer Price Index was unchanged at 3.4% for January, against the expected 3.5%.
• RBNZ held the OCR unchanged at 5.5% in its February monetary policy meeting.
• The US Dollar could face a challenge on subdued US Treasury yields.

The Australian Dollar (AUD) faces challenges following the release of cooler-than-anticipated Monthly Consumer Price Index (CPI) data from Australia on Wednesday. Furthermore, the decline in the S&P/ASX 200, which followed subdued price action on Wall Street overnight, added to market uncertainty ahead of the release of a series of economic data from the United States (US).

Australian Bureau of Statistics showed no change in the price of a fixed basket of goods and services acquired by household consumers. The Monthly Consumer Price Index (CPI) was unchanged at 3.4% for January, which was below market expectations of 3.5%. Investors are now turning their attention to the release of Australian Retail Sales data on Thursday for additional insights into the economic outlook.

The US Dollar Index (DXY) maintains stability as investors await the release of the preliminary Gross Domestic Product Annualized (Q4) from the United States, scheduled for Wednesday. Market expectations anticipate the GDP to remain consistent at 3.3% in the fourth quarter of 2023. The Federal Reserve (Fed) has indicated caution regarding hastily reducing rates, leading to a reduced likelihood of any rate cut in March, which puts downward pressure on the US Dollar (USD).

Daily Digest Market Movers: Australian Dollar depreciates on cooler Aussie inflation data

• Australian Construction Work Done increased by 0.7% in the fourth quarter of 2023, against the expected 0.8% and 1.3% prior.
• ANZ-Roy Morgan Australian Consumer Confidence is nearly unchanged at 83.2 for the current week. This marks the 56th consecutive week that the index has remained below the threshold of 85. The index sits just 0.4 points below the 2024 weekly average of 83.6.
• The Reserve Bank of New Zealand (RBNZ) decided to hold the Official Cash Rate (OCR) unchanged at 5.5%, as widely expected in its February monetary policy meeting.
• RBA’s Meeting Minutes revealed that the Board deliberated on the possibility of raising rates by 25 basis points (bps) or keeping rates unchanged. While recent data indicated that inflation would return to target within a reasonable timeframe.
• It is anticipated that China will lift tariffs on Australian wine by the end of March. These tariffs were imposed by China in retaliation for actions taken by the United States against China during the Trump administration.
• Santander US Capital Markets suggested in a note, as reported by The Wall Street Journal, that the Federal Reserve's FOMC might postpone rate cuts until after the US election. They anticipate that the US economy and inflation will continue to surpass expectations, which could justify delaying monetary easing.
• As per the CME FedWatch Tool, the odds for March rate cuts have dropped to 1.0%, with the likelihood of a cut down in May and June to 21% and 49.8%, respectively.
• According to reports, US House Speaker James Michael Johnson has informed the White House of his willingness to adjust the two funding deadlines to March 8 and March 22. Currently, funding is set to expire for four bills on March 1, and for eight bills on March 8.
• US Housing Price Index (MoM) increased by 0.1% in December, falling short of the 0.3% expected and 0.4% prior.
• US Durable Goods Orders ex Transportation contracted by 0.3% in January, compared to the expected rise of 0.2% and the previous decline of 0.1%.
• US Durable Goods Orders ex Defense (Jan) reduced by 7.3% against the previous increase of 0.1%.
• US Durable Goods Orders decreased by 6.1% against the market expectation of a 4.5% decrease and a previous decrease of 0.3%.
• US New Home Sales Change (MoM) grew by 1.5% in January, falling short of the previous growth of 7.2%.
• US New Home Sales (MoM) came in at 0.661M in January against the expected 0.680M and 0.664 prior.

Technical Analysis: Australian Dollar moves below the major level of 0.6550

The Australian Dollar trades around 0.6540 on Wednesday with psychological support seen at 0.6500. A breach below this level could potentially prompt the AUD/USD pair to target the area around the major support level of 0.6450 and February’s low at 0.6442. Conversely, on the upside, the immediate resistance zone is observed around the 23.6% Fibonacci retracement at 0.6543 and the major level of 0.6550. A breakout above this resistance zone may lead the AUD/USD pair to test further barriers, including the 50-day Exponential Moving Average (EMA) at 0.6571. Subsequently, additional resistance zones lie around the psychological level of 0.6600 and the 38.2% Fibonacci retracement at 0.6606.

AUD/USD: Daily Chart