Australian Dollar floats below a psychological level, US Dollar strives to extend gains

• Australian Dollar hovers below a psychological resistance amid a weaker S&P/ASX 200.
• Reserve Bank of Australia Governor Michele Bullock reaffirmed the commitment to managing inflation.
• CBA maintains its forecast of 75 bps rate cuts for 2024, with the initial cut anticipated in September.
• The US Dollar attempts to extend its gains despite the weaker US bond yields.

The Australian Dollar (AUD) consolidates with a downward bias on Friday, following the losses registered in the previous two sessions. The AUD/USD pair encounters difficulties amidst the downbeat performance of the S&P/ASX 200, along with the weaker prices of coal and iron ore. Moreover, the US Dollar (USD) strengthened against the Australian Dollar (AUD), supported by the uptick in US Treasury yields observed on Thursday.

Australian Dollar may have found some support as Reserve Bank of Australia (RBA) Governor Michele Bullock reaffirmed the RBA's commitment to managing inflation, noting encouraging signs in inflation data. Bullock highlighted that while the board has not ruled out the possibility of further interest rate hikes, it has also not confirmed any. However, the Commonwealth Bank of Australia (CBA) maintains its forecast of 75 basis points in benchmark interest rate cuts for 2024, with the initial cut anticipated in September.

The US Dollar Index (DXY) strives to build on its recent uptrend for the second consecutive day, even as US bond yields dip. This resilience is largely attributed to hawkish remarks from the US Federal Reserve (Fed) officials, which continue to bolster the US Dollar. Furthermore, positive data from the US job market likely provides additional support to the strengthening of the Greenback.

Federal Reserve Richmond President Thomas Barkin reiterated on Thursday that policymakers have the flexibility to exercise patience regarding the timing of rate adjustments, citing a robust labor market and persistent disinflation. Federal Reserve Chair Jerome Powell also dismissed the notion of a rate cut in March during a press conference following the interest rate decision on January 31.

US Initial Jobless Claims declined to 218K in the week ending on February 2, from the previous week's 227K, surpassing the estimated figure of 220K. Continuing Jobless Claims dropped to 1.871M for the week ending January 26. Market forecasts anticipated a decrease of 1.878M from the previous reading of 1.894M.

Daily Digest Market Movers: Australian Dollar remains calm 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%.
• 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%.
• China’s annual CPI declined by 0.8%, exceeding the anticipated decline of 0.5% and the previous decline of 0.3%.
• China’s Producer Price Index (YoY) declined by 2.5%, lower than the expected 2.6% decline.
• Federal Reserve Governor Adriana Kugler expressed satisfaction with the significant progress on inflation during remarks on Wednesday, expressing optimism that this progress will persist.
• 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.
• 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 Initial Jobless Claims 4-week average rose to 212.25K in the week ending on February 2, from 208.5K prior.
• US Wholesale Inventories remained consistent at 0.4%, as expected.
• 4-week and 30-year US Bill was auctioned at the average yield of 5.28% and 4.36%, respectively.

Technical Analysis: Australian Dollar hovers below the psychological level of 0.6500

The Australian Dollar trades around 0.6490 on Friday, slightly below the immediate resistance at the psychological level of 0.6500. A breakthrough above the psychological level could potentially prompt further upward movement for the AUD/USD pair, with key targets including the major barrier at 0.6550 followed by the 23.6% Fibonacci retracement level at 0.6563 aligned with the 21-day Exponential Moving Average (EMA) at 0.6568. On the downside, key support is anticipated at the weekly low at 0.6468 before the major support of 0.6450 level.

AUD/USD: Daily Chart