Australian Dollar extends gains above a major level, focus on US data

• Australian Dollar continues to reach fresh highs on the subdued US Dollar.
• Australian robust economic conditions influence the RBA to maintain its hawkish stance.
• China's NDRC's Chairman, Zheng Shanjie mentioned that China will strive to expand domestic demand.
• Investors await US data releases to gain further impetus on the Fed’s stance.

The Australian Dollar (AUD) continues to gain ground on Thursday as the US Dollar (USD) fell below the 101.00 mark, influenced by subdued US Treasury yields. The AUD/USD pair receives additional upward support from improved risk appetite, with investors speculating on a dovish stance from the Federal Reserve (Fed) regarding interest rates in early 2024.

Australia's inflation and housing prices are displaying resilience, potentially influencing the Reserve Bank of Australia (RBA) to maintain its hawkish stance. The latest RBA forecasts are nearing the upper boundary of the 2-3% inflation target by the end of the year 2025. In its recent Meeting Minutes, the RBA emphasized the importance of carefully examining additional data to assess the balance of risks before making future interest rate decisions. There is widespread anticipation that the RBA will refrain from a rate cut in February's policy meeting.

China's National Development and Reform Commission's (NDRC) Chairman, Zheng Shanjie, has expressed the country's commitment to implementing familiar policy measures. In a meeting held on Tuesday, Zheng mentioned that China will strive to expand domestic demand, ensuring a speedy economic recovery, and promoting stable growth.

The US Dollar Index (DXY) experiences continued weakness as the market anticipates potential rate cuts by the Federal Reserve (Fed) in the first quarter of the upcoming year. This expectation stems from the Fed's policy pivot in December, where the dot plot of rate expectations suggested the possibility of up to three cuts, amounting to a total of 75 basis points in rate reductions by the end of 2024.

US Richmond Fed Manufacturing Index recorded a significant decline of 11 points in December, exceeding the market's expectation of a 7-point drop. This comes after a 5-point decrease in November. The unexpected contraction in the manufacturing index may impact market perceptions of economic conditions. Investors will likely turn their attention to Thursday's Initial Jobless Claims and Pending Home Sales releases.

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

• RBA Private Sector Credit (MoM) demonstrated a 0.4% increase in November, surpassing the previous rise of 0.3%. However, the Year-over-Year data indicated a decrease of 4.7%, compared to the previous 4.8% rise.
• RBA highlighted the examination of additional data to assess the balance of risks before deciding on future interest rates in its recent Meeting Minutes.
• China's year-on-year Industrial Profits for January to November registered a decline of 4.4%, indicating a slowdown and highlighting the need for additional policy support from Beijing to bolster growth in the world's second-largest economy.
• Former Dallas Federal Reserve President Robert Kaplan emphasized that he believed that the Federal Reserve is cautious to avoid a scenario where the monetary tightening becomes overly restrictive.
• US Housing Price Index (MoM) contracted to 0.3% from 0.7% prior, falling short of 0.5% expectations in October.
• US Bureau of Economic Analysis (BEA) reveals that the Core Personal Consumption Expenditures - Price Index (YoY) grew at 3.2% in November, falling short of the 3.3% expectations and 3.4% prior. Meanwhile, the MoM data showed consistency at 0.1% against the market expectation of 0.2%.
• US Gross Domestic Product Annualized grew at a rate of 4.9% in Q3, slightly below the expected consistency of 5.2%.

Technical Analysis: Australian Dollar moves above 0.6850 major level

The Australian Dollar hovers around 0.6860 on Thursday. The prevailing bullish sentiment suggests a potential for the AUD/USD pair to approach the key resistance at the psychological level of 0.6900. On the downside, support levels are identifiable at the psychological level of 0.6850, followed by the seven-day Exponential Moving Average (EMA) at 0.6810 before the psychological support at 0.6800. A breach below this crucial support zone could potentially lead the AUD/USD pair to navigate the 23.6% Fibonacci retracement level at 0.6729.

AUD/USD: Daily Chart