Australian Dollar maintains its position above a psychological level, awaits US NFP

• Australian Dollar faced challenges due to risk-off sentiment and softer commodity prices.
• Australian PMI data indicated a contraction in business activities.
• US ADP Employment Change added 164K new positions against the 101K prior.
• Initial Jobless Claims reduced to 202K from the previous reading of 220K.

The Australian Dollar (AUD) attempts to snap its losing streak on Friday. The AUD/USD pair is facing downward pressure, even with the US Dollar (USD) lacking a clear direction and an improved China's Caixin Services PMI in December. The weakened market sentiment and a widespread decline in commodity prices are both playing a role in the Aussie Dollar's weakness.

Australia's latest Judo Bank Purchasing Managers Index (PMI) data indicated a contraction in business activities across both the services and manufacturing sectors, further highlighting the vulnerability of the Australian Dollar. The Services PMI specifically showed the most rapid contraction in services since the third quarter of 2021. However, Matthew De Pasquale, Economist at Judo Bank, proposes that the deceleration in the Australian economy is not gaining momentum.

The US Dollar Index (DXY) holds a steady course, exhibiting a slight inclination towards positive sentiment and potential gains. Nevertheless, the retracement of recent advances in United States (US) Treasury yields might put some pressure on the Greenback. Furthermore, the optimistic employment data unveiled on Thursday could be bolstering support for the US Dollar.

US ADP Employment Change surged in December, adding 164K new positions, surpassing both the previous figure of 101K and the market expectation of 115K. Initial Jobless Claims for the week ending on December 29 displayed positive signs for the labor market, decreasing to 202K from the previous 220K, beating the anticipated 216K. However, the S&P Global Composite PMI for December reported a minor dip in business activities, registering a reading of 50.9 compared to the market consensus of a steady 51.0.

Traders await more crucial data from the US employment market including Average Hourly Earnings and Nonfarm Payrolls (NFP) for December. Additionally, the ISM Services PMI is poised to unveil the current conditions within the US service sector.

Daily Digest Market Movers: Australian Dollar faces challenges on softer Aussie PMI

• Australia Judo Bank Services PMI reported a reading of 47.1, falling short of market expectations that it would remain consistent at 47.6. The Composite PMI decreased to 46.9 from the previous figure of 47.4.
• Australia’s Judo Bank Manufacturing PMI indicated a modest contraction in manufacturing activity, declining to 47.6 in December from the previous reading of 47.8.
• RBA's internal documents revealed a slip in domestic tourism demand. Additionally, consumers are reported to be trading down to more affordable products or reducing their overall purchases due to cost-of-living pressures. However, the documents suggest that private sector wage growth has stabilized at around 4.0%.
• Australian Prime Minister Anthony Albanese announced that he has directed Treasury and Finance to explore measures that can alleviate the financial burden on families in terms of cost of living without exerting additional inflation pressure.
• China Caixin Services PMI rose to 52.9 in December, exceeding the 51.6 expected and 51.5 prior.
• The December minutes from the Federal Open Market Committee (FOMC) suggest that participants think the policy rate has either reached or is close to its highest point in the current tightening cycle. However, they emphasized that the specific trajectory of the policy would hinge on the evolving economic conditions.
• US ISM Manufacturing PMI showed an increase to 47.4 in December from the previous reading of 46.7, surpassing the market consensus of 47.1.
• US JOLTS Job Openings contracted to 8.79 million, falling short of the expected figure of 8.85 million in November.
• US ISM Manufacturing Employment Index improved to 48.1 in December from 45.8 in November.
• US S&P Global Manufacturing PMI posted a lower-than-expected figure of 47.9, diverging from the anticipated consistency at 48.2.

Technical Analysis: Australian Dollar stays above the psychological level at 0.6700

The Australian Dollar trades near 0.6710 on Friday, with a significant resistance level at 0.6750 aligned with the nine-day Exponential Moving Average (EMA) at 0.6751. A successful breakthrough above the latter could pave the way for the AUD/USD pair to challenge the psychological barrier at 0.6800. On the downside, the psychological level at 0.6700 could act as a potential support. A break below the psychological level could push the AUD/USD pair to navigate the major support at 0.6650 followed by the 38.2% Fibonacci retracement level at 0.6637.

AUD/USD: Daily Chart