Australian Dollar trades near a five month high, PBoC keeps interest rate unchanged

• Australian Dollar gained ground on hawkish RBA Meeting Minutes.
• Australian central bank is expected to keep its interest rate unchanged in February's meeting.
• PBoC kept its benchmark interest rate unchanged at 3.45% in December's meeting.
• US Dollar lost ground on speculation of the Fed considering rate cuts in early 2024.

The Australian Dollar (AUD) trades below its five-month high at 0.6774 on Wednesday on subdued US Dollar (USD) and improved risk appetite. The AUD/USD pair received upward support from the hawkish stance revealed by the Meeting Minutes from the Reserve Bank of Australia (RBA) on Tuesday. Additionally, the upbeat commodity prices contributed support to the Australian Dollar.

Australia's central bank emphasized the significance of waiting for additional data to assess the balance of risks. This consideration takes into account the potential for inflation to persist at elevated levels for an extended period. Additionally, the board noted that the RBA staff forecast anticipated inflation returning to the upper end of the band by the end of 2025 rather than the midpoint.

The Reserve Bank of Australia is widely anticipated to avoid a rate cut in February's policy meeting, according to the World Interest Rate Probability Tool (WIRP). However, there is a higher probability of the central bank easing monetary tightening in the meetings scheduled for May and June.

The People’s Bank of China (PBoC) released its Interest Rate Decision on Wednesday. The Monetary Policy Committee (MPC) kept the benchmark rate unchanged at 3.45%.

The US Dollar Index (DXY) experienced a decline in the previous session, struggling to recover the recent losses amidst subdued US Treasury yields. The US Dollar encounters challenges due to the dovish sentiment surrounding the US Federal Reserve (Fed), hinting at potential monetary policy easing in early 2024.

US Housing Starts rose to 1.56M, surpassing the market consensus of 1.36M. However, Building Permits declined to 1.46M, slightly below the forecast of 1.47M. Existing Home Sales Change and the CB Consumer Confidence survey will be eyed on Wednesday.

Daily Digest Market Movers: Australian Dollar gains ground on improved risk appetite

• Westpac Leading Index (MoM) for November improved by 0.01% against the previous reading of flat 0.0%.
• The preliminary Judo Bank Composite PMI improved to 47.4 from the previous reading 46.2. The Manufacturing PMI for the same period registered 47.8, a slight increase from the prior figure of 47.7. Additionally, the Services PMI grew to 47.6 compared to the previous reading of 46.0.
• Australia’s Consumer Inflation Expectations for December eased at 4.5% against the previous figures of 4.9%.
• Australian Trade Minister Don Farrell stated that he believes China will eliminate punitive tariffs on Australian wine. China has already lifted trade restrictions on most Australian exports, signaling a gradual improvement in the relations between the two countries.
• New York Fed President John Williams offered a counterpoint in contrast to speculation about a March rate cut from the Federal Open Market Committee (FOMC). Furthermore, San Francisco Fed President Mary Daly stated that speculating on the policy stance for the upcoming year is premature.
• US S&P Global Services PMI rose to 51.3 from 50.8 prior. While Manufacturing PMI declined to 48.2 from 49.4.

Technical Analysis: Australian Dollar hovers around 0.6750 major level

The Australian Dollar trades around 0.6750 on Wednesday, below its recent five-month high of 0.6774 reached on Tuesday. The prevailing bullish sentiment suggests the potential for the AUD/USD pair to revisit the recent peak and target the key resistance at the psychological level of 0.6800. On the downside, support may be found at the seven-day Exponential Moving Average (EMA) at 0.6701, in alignment with the psychological level at 0.6700. A breach below this key support region could lead the AUD/USD pair towards the 23.6% Fibonacci retracement at 0.6656 before reaching the critical zone at 0.6650.

AUD/USD: Daily Chart