Australian Dollar remains subdued following China's inflation report

• The Australian Dollar loses ground after releasing mixed domestic data on Thursday.
• China's Consumer Price Index rose by 0.1% YoY in December, against the previous 0.2% increase.
• The US Dollar rose as the 10-year yield on Treasury bonds advanced following the FOMC Minutes release.

The Australian Dollar (AUD) extends its losses for the third consecutive day against the US Dollar (USD), with the AUD/USD pair holding losses following mixed economic data released on Thursday. Traders are now focused on Friday’s US Nonfarm Payroll (NFP) report, for additional policy direction insights.

Australia's trade surplus rose to 7,079 million in November, surpassing the expected 5,750 million and the previous reading of 5,670 million (revised from 5,953 million). Exports increased by 4.8% month-on-month (MoM) in November, up from 3.5% (revised from 3.6%) in October. Meanwhile, imports grew by 1.7% MoM in November, compared to 0% (revised from 0.1%) in the previous month.

Australia's Retail Sales, a key indicator of consumer spending, increased by 0.8% month-on-month in November, up from the 0.5% growth recorded in October (revised from 0.6%). However, the figure fell short of market expectations, which had anticipated a 1.0% rise.

China's Consumer Price Index (CPI) increased by 0.1% year-on-year in December, slightly lower than the 0.2% rise in November, matching market expectations. On a month-on-month (MoM) basis, CPI inflation remained unchanged at 0% in December, aligning with estimates, following a 0.6% decline in November.

Australian Dollar declines as US Dollar strengthens amid rising hawkish sentiment surrounding Fed

• The US Dollar Index (DXY), which measures the US Dollar’s (USD) performance against six major currencies, holds its position near 109.00 following strong labor market figures.
• The US Dollar strengthened as the 10-year yield on US Treasury bonds rose to near 4.73% in the previous session, currently standing at 4.67%, while the 30-year approached 4.93%.
• The Federal Open Market Committee (FOMC) Minutes from the December meeting revealed that most participants supported a 25 basis point cut but remained cautious, factoring in potential trade and immigration policy changes that could prolong elevated inflation.
• US Initial Jobless Claims fell to 201,000 for the week ending January 3, beating the 218,000 consensus. ADP Employment Change rose by 122K in December, though below market expectations of 140K.
• The US ISM Services PMI increased to 54.1 in November, up from 52.1, exceeding the market expectation of 53.3. The Prices Paid Index, which reflects inflation, rose significantly to 64.4 from 58.2, while the Employment Index dipped slightly to 51.4 from 51.5.
• According to Bloomberg, Federal Reserve Bank of Atlanta President Raphael Bostic stated on Tuesday that Fed officials should exercise caution with policy decisions due to uneven progress in reducing inflation. Bostic emphasized the need to lean toward keeping interest rates elevated to ensure the achievement of price stability goals.
• Richmond Fed President Thomas Barkin highlighted on Friday that the benchmark policy rate should remain restrictive until there is greater confidence that inflation will return to the 2% target. Meanwhile, Fed Governor Adriana Kugler and San Francisco Fed President Mary Daly underscored the challenging balancing act facing US central bankers as they aim to slow the pace of monetary easing this year.
• The Australian Dollar faced challenges as the trimmed mean, a closely watched measure of core inflation, fell to an annual 3.2% from 3.5%, edging closer to the Reserve Bank of Australia's (RBA) target band of 2% to 3%. Traders are currently pricing in a 55% probability that the RBA will lower its cash rate by 25 basis points to 4.35% in February, with a full quarter-point cut expected by April.
• Australia's monthly Consumer Price Index (CPI) rose 2.3% year-over-year in November, surpassing the market forecast of 2.2% and marking an increase from the 2.1% rise seen in the previous two months. This is the highest reading since August. However, the figure remains within the RBA’s target range of 2–3% for the fourth consecutive month, aided by the ongoing impact of the Energy Bill Relief Fund rebate.

Australian Dollar hovers around 0.6200, next barrier appears at nine-day EMA

The AUD/USD pair hovers near 0.6200 on Thursday, maintaining a bearish outlook as it continues to trade within a descending channel on the daily chart. The 14-day Relative Strength Index (RSI) remains slightly above 30, suggesting the potential for an intensification of bearish momentum.

On the downside, the AUD/USD pair could approach the lower boundary of the descending channel around the 0.5980 level.

The immediate resistance is seen near the nine-day Exponential Moving Average (EMA) at 0.6220, followed by the 14-day EMA at 0.6234. A stronger resistance level lies near the upper boundary of the descending channel, around 0.6260.

AUD/USD: Daily Chart