Australian Dollar extends its gains due to improved risk appetite amid a subdued US Dollar

• Australian Dollar gains ground on risk-on sentiment ahead of US CPI data.
• Australian money market moves lower in on Monday despite a record surge in US markets on Friday.
• US CPI YoY and MoM are expected to ease at 3.0% and 0.2%, respectively, in January.
• The US Dollar depreciates despite stable US Treasury yields.

The Australian Dollar (AUD) seeks to build on its recent gains during a quiet Asian session on Monday. Despite stable US Treasury yields, the weakening US Dollar (USD) weighs on the AUD/USD pair. Moreover, the rise in Chinese New Loans may provide additional support for the Australian Dollar.

Australian Dollar could face some constraints due to the downturn in the Australian money market, which disregarded a record surge in United States (US) markets on Friday and trended lower in early trading on Monday. Traders are adopting a cautious approach in anticipation of crucial US inflation data that could impact interest rate expectations.

Reserve Bank of Australia (RBA) Governor Michele Bullock addressed parliament on Friday, acknowledging the positive trends in recent inflation data while stressing the necessity for continued progress to achieve the target. She also indicated that if consumer spending slows down more quickly than anticipated, rate cuts could be on the table for consideration.

Chinese lenders typically front-load loans at the start of the year, and January's New Loans data released on Friday reflected this trend, with banks extending 4,920 billion Yuan, a record high that surpassed the December figure of 1,170 billion Yuan by more than four times. However, concerns about deflation in China are dampening sentiment, potentially putting downward pressure on the Australian Dollar and serving as a headwind for the AUD/USD pair. It's worth noting that the markets in China are closed for the Lunar New Year holidays.

The US Dollar Index (DXY) experiences a decline amid a risk-on sentiment prevailing in the market, particularly ahead of the release of the Consumer Price Index (CPI) data scheduled for Tuesday. Analysts anticipate that the CPI (Year-on-Year) for January will show a moderation to 3.0% in January from 3.4% in December. Additionally, the monthly CPI data is expected to decrease to 0.2% from 0.3% compared to the previous reading.

Dallas Federal Reserve (Fed) Bank President Lorie Logan remarked on Friday that there is currently no pressing need to lower interest rates. She acknowledged "tremendous progress" in curbing inflation but emphasized the necessity for additional evidence to ensure the sustainability of this progress. This sentiment aligns with US Fed Chair Jerome Powell's dismissal of the idea of a rate cut in March, as stated during a press conference following the interest rate decision on January 31.

Daily Digest Market Movers: Australian Dollar gains ground on risk-on sentiment

• 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%.
• The Commonwealth Bank of Australia (CBA) forecasted a reduction of 75 basis points in the benchmark interest rate for 2024, with the initial cut anticipated 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%.
• 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.
• 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.
• US 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.
• US Initial Jobless Claims 4-week average rose to 212.25K in the week ending on February 2, from 208.5K prior.
• 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, which stood at 4.5%.

Technical Analysis: Australian Dollar hovers around 0.6520 ahead of nine-day EMA

The Australian Dollar trades around 0.6520 on Monday, positioned below the immediate barrier of the nine-day Exponential Moving Average (EMA) at 0.6530 and the significant level of 0.6550. A breakthrough above this major level could potentially trigger further upward movement for the AUD/USD pair, with key targets including the 23.6% Fibonacci retracement level at 0.6563, followed by the psychological resistance at the 0.6600 level. On the downside, key support is expected at the psychological level of 0.6500, followed by the previous week’s low at 0.6468, before reaching the major support level of 0.6450.

AUD/USD: Daily Chart