Australian Dollar extends its gains after a volatile session, Aussie Retail Sales eyed

• Australian Dollar improves on subdued US Dollar.
• Australian Retail Sales is anticipated to increase by 1.2% against the previous decline of 0.2%.
• Chinese wealth manager Zhongzhi has filed for bankruptcy liquidation.
• US Nonfarm Payrolls rose to 216K from the previous figure of 173K.
• ISM Services PMI eased at 50.6 against the expected 52.6 and 52.7 prior.

The Australian Dollar (AUD) trades higher against the US Dollar (USD) on Monday, extending its gains after a volatile session on Friday. This was influenced by mixed economic data from the United States (US). Despite a robust US employment report, concerns linger over weaker business activity in the services sector, prompting investors to approach the economy's outlook with caution.

Australia's upcoming Retail Sales (MoM) data for November is due on Tuesday, expected to show a 1.2% increase from October's 0.2% decline, could influence the Reserve Bank of Australia (RBA) policymakers to maintain elevated interest rates for an extended period. However, the recent Judo Bank Purchasing Managers Index (PMI) data revealed a contraction in business activities in both services and manufacturing sectors, which might have underscored the vulnerability of the Australian Dollar.

Chinese wealth manager Zhongzhi Enterprise Group has filed for bankruptcy liquidation, facing a staggering $64 billion in liabilities. As a major player in China's $3 trillion shadow banking sector, its financial struggles could indicate contagion from the broader property debt crisis into the financial sector. This event will likely negatively impact the Aussie Dollar (AUD), given the close economic ties between China and Australia.

The US Dollar Index (DXY) moves sideways with a negative bias, possibly influenced by the decline in the short-term yield on the 2-year US Treasury bond. On Friday, the US Dollar lurched with fluctuations between gains and losses, which can be attributed to mixed US data.

US Bureau of Labor Statistics indicated a positive development in the job market. Nonfarm Payrolls rose to 216K in December, showing an improvement from the 173K reported in November. This figure surpassed the market expectation, which anticipated a rise of 170K. Furthermore, Average Hourly Earnings (YoY) improved to 4.1% from 4.0% prior. Meanwhile, the monthly index remained consistent at 0.4% against the expected decline of 0.3%.

The Institute for Supply Management (ISM) revealed the services sector slowed in December, as the Services Purchasing Managers Index (PMI) came in at 50.6 against the expected 52.6 and 52.7 prior. While the Services Employment Index reduced to 43.3 from the previous reading of 50.7.

The president of the Federal Reserve Bank of Dallas, Lorie Logan, provided insights on Saturday, suggesting that a rate hike should not be ruled out given the recent easing in financial conditions. She emphasized the importance of avoiding premature easing, which could stimulate demand. Maintaining sufficiently tight financial conditions is seen as crucial to managing the risk of inflation picking back up and potentially reversing progress.

Daily Digest Market Movers: Australian Dollar improves on subdued US Dollar

• 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.
• China Caixin Services PMI rose to 52.9 in December, exceeding the 51.6 expected and 51.5 prior.
• US ADP Employment Change added 164K new positions, surpassing the previous figure of 101K and the market expectation of 115K.
• US 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.
• US 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.

Technical Analysis: Australian Dollar hovers below the major barrier at 0.6750

The Australian Dollar trades near 0.6730 on Monday, with a barrier at the nine-day Exponential Moving Average (EMA) at 0.6748 aligned with the major resistance at the 0.6750 level. 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 23.6% Fibonacci retracement at 0.6725 acts as the immediate support followed by the psychological level at 0.6700. A break below the psychological level could push the AUD/USD pair to retest the major support at 0.6650 and the 38.2% Fibonacci retracement level at 0.6637.

AUD/USD: Daily Chart