Australian Dollar remains calm after subdued Chinese CPI, US Dollar remains stable

• Australian Dollar retraces its recent losses amid a stable US Dollar.
• Australia's currency is strengthened as RBA’s Bullock did not rule anything in or out regarding future policy actions.
• Chinese CPI (YoY) declined by 0.8% against the anticipated decline of 0.5% and the previous decline of 0.3%.
• Fed members commit to keeping interest rates elevated until inflation sustainably returns to the 2% target.

The Australian Dollar (AUD) recovers its recent losses on Thursday, buoyed by a risk-on sentiment in the market. Despite the US Federal Reserve (Fed) emphasizing its commitment to keeping interest rates elevated until inflation sustainably returns to the 2% target, the US Dollar (USD) faces challenges. Moreover, improved conditions in the Australian money market are lending support to the Aussie Dollar (AUD), thereby bolstering the AUD/USD pair.

Australian currency is bolstered by hawkish remarks from Reserve Bank of Australia (RBA) Governor Michele Bullock following the interest rate decision on Tuesday. The RBA opted to keep its Official Cash Rate (OCR) unchanged at 4.35%.

Governor Bullock refrained from making explicit statements regarding future policy actions, neither ruling anything in nor out. However, futures markets are currently pricing in two potential interest rate cuts by the RBA this year, with the first expected in September.

Chinese Consumer Price Index (CPI) grew by 0.3% MoM in January, falling short of the expected 0.4%. However, it has been improved from the previous reading of 0.1%. The annual CPI declined by 0.8%, exceeding the anticipated decline of 0.5% and the previous decline of 0.3%. Meanwhile, Producer Price Index (YoY) declined by 2.5% lower than the expected 2.6% decline.

The US Dollar Index (DXY) seems to continue its downward trend for the third consecutive session, pressured by a correction in US Treasury yields. However, Federal Reserve Chair Jerome Powell dismissed the possibility of a rate cut in March. Traders will focus on jobs data on Thursday, including US Initial Jobless Claims for the week ending on February 2.

Federal Reserve Governor Adriana Kugler expressed satisfaction with the significant progress on inflation during remarks on Wednesday, expressing optimism that this progress will persist. Meanwhile, Fed Boston President Susan Collins, speaking at the Boston Economic Club, indicated the likelihood of rate cuts later in the year if the economy aligns with expectations.

Daily Digest Market Movers: Australian Dollar improves amid a steady US Dollar

• Australia’s December AiG Industry Index came in at -27.3 as compared to the -22.4 prior.
• Australia’s Retail Sales (QoQ) improved with a 0.3% rise in the fourth quarter compared to the previous growth of 0.2%.
• Australian Trade Balance (MoM) for January was reduced to the figure of 10,959M compared to the revised figure of 11,764M in December.
• Australia’s Judo Bank Composite Purchasing Managers Index (PMI) improved to 49 in January from 48.1 prior. The Services PMI saw an improvement, rising to 49.1 from the previous figure of 47.9.
• Chinese Caixin Services PMI reduced to 52.7 in January from the previous reading of 52.9.
• The Atlanta Fed's wage growth tracker has declined to 5.0% in January from 5.2% reported in December. This represents the lowest growth rate since December 2021, when it stood at 4.5%.
• US MBA Mortgage Applications rose to 3.7% for the week ending on February 2 from the previous decline of 7.2%.
• US Census Bureau showed that Goods and Services Trade Balance declined by 62.2 billion in December, as expected. The previous decline was 61.9 billion.
• 10-year US Note was auctioned at the average yield of 4.093% against the 4.024% prior.

Technical Analysis: Australian Dollar maintains position below major barrier of 0.6550

The Australian Dollar trades around 0.6530 on Thursday, slightly below the immediate resistance level at 0.6550. A breakthrough above this level could potentially catalyze further upward movement for the AUD/USD pair, with potential targets including the 23.6% Fibonacci retracement level at 0.6563 and the 21-day Exponential Moving Average (EMA) at 0.6579. On the downside, key support is anticipated at the psychological level of 0.6500. Additional support levels include the weekly low at 0.6468, followed by a major support level at 0.6450.

AUD/USD: Daily Chart