Australian Dollar moves above a psychological level after mixed Chinese inflation data

• Australian Dollar gains strength after the release of the mixed Chinese data.
• Australian currency retraces its recent losses on risk-on mood.
• Chinese CPI YoY fell by 0.3% and the monthly figure eased to 0.1%.
• Upbeat US CPI contributed support to underpinning the US Dollar.

The Australian Dollar (AUD) made a modest upward move, nearing the psychological level at 0.6700 on Friday following a retracement after registering losses in the previous session. The AUD/USD pair is getting support for its upward movement as market speculation remains elevated regarding potential rate cuts by the US Federal Reserve (Fed) in March and May. However, the pair experienced a downward shift following the release of better-than-expected inflation data from the United States (US).

Australia's Monthly Consumer Price Index for October and November indicates a marginal decrease, suggesting that the headline inflation for Q4 2023 will likely fall below the Reserve Bank of Australia's (RBA) annual forecast of 4.5%. The Australian Bureau of Statistics (ABS) data on job vacancies, showing a decline for six consecutive quarters, aligns with the easing pressures in the labor market. These findings imply that there may be no further interest rate hikes from the RBA in February.

Australia’s data also showed the increase in November's Retail Sales and the widening of December's Trade Surplus present contrasting signals. These positive economic indicators could influence the RBA to refrain from implementing any monetary policy easing despite the subdued inflation data.

Chinese Consumer Price Index (YoY) exhibited a decrease of 0.3% in December, contrary to the anticipated 0.4% decline. Additionally, the monthly Consumer Price Index showed a milder easing at 0.1%, compared to the market expectation of 0.2%. The yearly Producer Price Index recorded a fall of 2.7%, slightly exceeding the expected decline of 2.6%.

The US Dollar Index (DXY) maintains its position to build on recent gains after positive US inflation data was released on Thursday. Despite a slight setback in the previous session due to a decline in US Treasury yields, the US Dollar (USD) is poised for potential advancements on Friday as US yields show signs of improvement.

US Bureau of Labor Statistics reported that the Consumer Price Index (CPI) surged to 3.4% YoY in December, exceeding both November's 3.1% and the anticipated market figure of 3.2%. Additionally, the monthly CPI growth for December showed a 0.3% increase, surpassing the market analysts' estimated projection of 0.2%. The annual Core CPI stood at 3.9%, a slight decrease from November's 4.0%, while the monthly figure remained steady at 0.3%, in line with expectations.

Traders anticipate the release of the US Producer Price Index (PPI) data for December, seeking additional insights into the economic landscape of the United States. In addition to the PPI data, the market will be attentive to a speech by Federal Reserve member Neel Kashkari later in the North American session, as it could provide further context and influence on market sentiment.

Daily Digest Market Movers: Australian Dollar experiences gains on risk-on mood

• Australia's trade surplus increased to 11,437M MoM in December, surpassing the market expectation of 7,500M and exceeding the previous reading of 7,129M.
• Australian Monthly Consumer Price Index (YoY) for November showed a slight reduction to 4.3%, falling slightly short of the market expectation of 4.4% from the previous figure of 4.9%.
• Chinese Defense Ministry has urged the United States to cease providing support to provocations by certain countries. China is calling on the US to adhere to the "One China Principle" and to halt the arming of Taiwan. Furthermore, the ministry is urging the US to strictly restrain front-line forces and refrain from hyping up security issues.
• New York Federal Reserve (Fed) President John Williams remarked on Wednesday that financial markets remain highly responsive to new data. Williams expressed confidence in the Fed's current position and suggested that it is now opportune to contemplate the future trajectory of interest rates.
• US Initial Jobless Claims for the week ending on January 5 eased at 202K against the market expectation of 210K and 203K prior.

Technical Analysis: Australian Dollar hovers around 0.6700 psychological level

The Australian Dollar trades near 0.6700 on Friday, positioned below the 14-day Exponential Moving Average (EMA) at 0.6721. A potential breakthrough above the EMA might propel the AUD/USD pair toward the key resistance at 0.6750. On the downside, crucial support lies at 0.6650, in conjunction with the weekly low at 0.6647, serving as significant psychological support. A breach below this level could lead the AUD/USD pair to explore the vicinity around the 38.2% Fibonacci retracement level, situated at 0.6637.

AUD/USD: Daily Chart