Australian Dollar remains tepid ahead of the RBA decision

• The Australian Dollar depreciates as traders adopt caution ahead of the RBA Interest Rate Decision.
• The RBA is expected to hold the Official Cash Rate steady at 4.35% in its final policy meeting in December.
• The US Dollar continues to gain ground ahead of US Consumer Price Index data due on Wednesday.

The Australian Dollar (AUD) edges lower ahead of the RBA Interest Rate Decision scheduled on Tuesday. The Reserve Bank of Australia (RBA) is expected to hold the Official Cash Rate (OCR) steady at 4.35% following its final policy meeting this year.

RBA Governor Michele Bullock said earlier that inflation is unlikely to "sustainably" return to the central bank's target range before 2026. She also stated that Australia’s core inflation remains “too high” to contemplate interest rate cuts soon.

Traders will likely observe the RBA Governor Michele Bullock’s comments to gauge the central bank’s monetary policy outlook. Elevated core and services inflation and relatively tight labor market conditions in Australia are the primary reasons behind the RBA’s cautious stance.

The US Dollar (USD) extends its winning streak for the third successive day as traders adopt caution ahead of the US Consumer Price Index (CPI) data release on Wednesday. Traders are now pricing in nearly an 85.8% chance of Fed rate reductions by 25 basis points on December 18, according to the CME FedWatch Tool.

Australian Dollar depreciates ahead of the RBA interest rate decision

• The Australian Unemployment Rate remained at 4.1% in October for the third consecutive month. The economy added 9,700 full-time jobs and 6,200 part-time roles, making a net change of 15,900 positions.
• The RBA’s closely watched inflation gauge, the annual Trimmed Mean Consumer Price Index (CPI), slowed to 3.5% from 4.0% in the third quarter but stayed well above the Bank’s 2%- 3% target.
• Australia's economy grew at its slowest annual pace since the pandemic in the third quarter. The OZ nation’s Gross Domestic Product (GDP) rose 0.3% in the September quarter, missing market forecasts of 0.4%. Weaker-than-expected GDP growth made markets almost fully price in a rate cut next April at 96% (from 73% before), according to Refinitive interest rate probabilities data.
• US November NFP data from Friday showed a robust 227,000 gain, well above expectations, and stable Average Hourly Earnings growth at 0.4% MoM.
• The AUD received support from improved sentiment and stimulus expectations from China. China’s leaders announced plans for proactive fiscal and looser monetary policies to accelerate domestic consumption in 2024.
• Weak Chinese CPI data (-0.6% in November, worse than expected) highlights challenges in the recovery but bolsters stimulus speculation.

Technical Analysis: Australian Dollar breaks below 0.6450, five-month lows

AUD/USD trades near 0.6420 on Tuesday, with bearish momentum gaining strength according to technical analysis. The pair remains confined within a descending channel, and the 14-day Relative Strength Index (RSI) remains below 50, indicating sustained negative sentiment.

On the downside, the AUD/USD pair has dropped below its five-month low of 0.6434, recorded on November 26. If this level is decisively broken, it could open the path toward the yearly low of 0.6348, last seen on August 5. Further support lies near the descending channel’s lower boundary, around 0.6225.

Immediate resistance for the AUD/USD pair is located at the nine-day Exponential Moving Average (EMA) at 0.6449, followed by the 14-day EMA at 0.6465, which aligns closely with the upper boundary of the descending channel. A decisive breakout above these levels could pave the way for a potential rally toward the five-week high of 0.6687.

AUD/USD: Daily Chart