Australian Dollar hovers near a psychological level amid US Dollar improves

• Australian Dollar remains slightly weak as the US Dollar continues to gain ground.
• Australian currency declined by 0.06% against the Greenback in 2023.
• China's Caixin Manufacturing PMI improved to 50.8 in December from 50.7 prior.
• Recent US data led the market bias toward the Fed’s dovish stance in early 2024.

The Australian Dollar (AUD) lingers near 0.6810 on Tuesday after a rebound on Friday. The AUD/USD pair experienced a 0.06% decline in 2023, extending its three-year losing streak. However, the pair saw gains in the past two months, attributed to a weaker US Dollar (USD) as there has been a slight dip in United States (US) inflation recently. The easing in US Inflation is leading to market speculation on the US Federal Reserve (Fed) to cut interest rates in early 2024.

Australia’s Dollar demonstrated resilience, fueled by an enhanced risk appetite and robust inflation and housing prices. The recent meeting minutes underscored the Reserve Bank of Australia's (RBA) commitment to scrutinizing additional data to gauge risk balance before deciding on future interest rates. The anticipation that the RBA will probably refrain from a rate cut in the upcoming February policy meeting adds support to maintaining the strength of the Australian Dollar (AUD).

China's Caixin Manufacturing Purchasing Managers Index (PMI) displayed improvement in December, registering a reading of 50.8, surpassing both the market consensus of 50.4 and the previous reading of 50.7. This positive surprise in manufacturing data could potentially bolster the Aussie Dollar (AUD), given the significant trade ties between China and Australia.

The US Dollar Index (DXY) continues to gain ground, but it may encounter challenges again as market participants observed a dip in recent US labor data, Core PCE Inflation, and GDP Annualized. The recent release of the Chicago Purchasing Managers Index by ISM-Chicago on Friday indicated an easing of business conditions across Illinois, Indiana, and Michigan in December.

These indicators validate the notion that the US economy is slowing down in the fourth quarter, signaling a potential soft landing. This reinforces the argument for Fed rate cuts in 2024 and exerts downward pressure on the USD.

Australia's Judo Bank Composite and Services PMI data for December are set to be released on Thursday. On the US docket, Wednesday will be marked by the scrutiny of ISM Manufacturing PMI figures and the Meeting Minutes from the Federal Open Market Committee (FOMC).

Daily Digest Market Movers: Australian Dollar moves sideways amid US Dollar improves

• Judo Bank Manufacturing PMI eased to 47.6 in December from the previous reading of 47.8.
• China’s NBS Manufacturing PMI for December reduced to the reading of 49.0 from the previous 49.4 figures. The market expectation was an increase to 49.5 readings. While NBS Non-Manufacturing PMI improved to 50.4 from the 50.2 prior but fell short of the 50.5 expected.
• The Chicago Purchasing Managers Index reduced to 46.9 in December from the previous 55.8.

Technical Analysis: Australian Dollar hovers near the psychological support at 0.6800

The Australian Dollar hovers around 0.6810 on Tuesday. The prevailing bullish sentiment could influence the AUD/USD pair to surpass again the major resistance level at 0.6850 following the psychological level of 0.6900. On the downside, the AUD/USD pair could find the key support at the psychological level at 0.6800 aligned with the nine-day Exponential Moving Average (EMA) at 0.6799. A breach below this crucial support zone could potentially lead the AUD/USD pair to navigate the major support at 0.6750 followed by the 23.6% Fibonacci retracement level at 0.6725.

AUD/USD: Daily Chart