The Australian dollar (AUD) has declined against the US dollar (USD) for the third consecutive session on Friday, still feeling the effects of recent economic data from China, which is a key trading partner for Australia.
In December, China’s consumer price index (CPI) saw a 0.8% year-on-year increase, a rise from 0.7% in November, but it was below the anticipated 0.9%. Monthly, the CPI rose by 0.2%, recovering from a -0.1% in November. Conversely, the producer price index (PPI) in China dropped 1.9% year-on-year in December, slightly better than the previous 2.2% decline, and just ahead of the anticipated -2.0% drop.
Data from the Australian Bureau of Statistics (ABS) released on Thursday indicated that Australia’s trade surplus narrowed in November, going from a revised $4.385 billion to $2.936 billion compared to the prior month. Exports fell by 2.9% month-on-month, reversing the 2.8% increase from October (which had been revised from 3.4%). Meanwhile, imports saw a slight monthly rise of 0.2% in November, a decline from October’s revised 2.4% increase.
Furthermore, Australia’s CPI for November was mixed, complicating the Reserve Bank of Australia’s (RBA) policy outlook going forward. Attention is now turning to the upcoming quarterly CPI report for more concrete direction regarding future RBA decisions. Still, RBA Deputy Governor Andrew Hauser remarked on Thursday that the inflation figures from November seemed to align with expectations and hinted that a rate cut isn’t imminent.
Strengthening USD Driven by Labor Market Data
- The US Dollar Index (DXY), which gauges the USD against six major currencies, was trading around 98.90, reflecting recent strengthening after the weekly US labor market data release.
- Traders are exercising caution as they await the U.S. nonfarm payrolls (NFP) report, which could further clarify labor market conditions and the Federal Reserve’s policy direction. The NFP is projected to rise by 60,000 jobs in December, down from 64,000 in November.
- In a CNBC interview on Thursday, U.S. Treasury Secretary Scott Bessent advised that the Fed should keep cutting interest rates, suggesting that these cuts are “the one missing ingredient” for stronger economic growth.
- Federal funds futures are now indicating an approximately 86.2% chance that interest rates will remain unchanged during the Fed’s meeting on January 27-28, as indicated by CME Group’s FedWatch tool.
- New jobless claims in the U.S. edged up to 208,000 for the week ending January 3, slightly below expectations of 210,000 but higher than the revised figure of 200,000 from the previous week. The number of ongoing unemployment claims also rose from 1.858 million to 1.914 million, suggesting a gradual uptick in those claiming benefits.
- According to the Institute for Supply Management (ISM), the U.S. services PMI for December stood at 54.4, improving from 52.6 in November and surpassing the expected 52.3.
- The U.S. ADP employment report showed an increase of 41,000 jobs in December, following a loss of 29,000 in November—a bit below the forecasted 47,000. Job openings reported in the JOLTS for November were at 7,146,000, lower than October’s revised 7.449 million and beneath market forecasts of 7.6 million.
- The ABS indicated that Australia’s CPI rose by 3.4% year-on-year in November, down from 3.8% in October but still above the RBA’s target of 2-3%. Interestingly, housing costs increased at the slowest rate in three months, leading to the lowest inflation level since August.
- Australia’s CPI remained unchanged month-on-month at 0%, exactly matching October’s figures. Meanwhile, the trimmed mean CPI climbed by 0.3% monthly and 3.2% annually. Separately, the seasonally adjusted building permits increased by 15.2% in November to 18,406 units, which marks the highest in about four years, rebounding from a revised 6.1% decline in the previous measurement. Annually, approvals rose by 20.2%, recovering from a 1.1% decline in October.
- The Australian Financial Review (AFR) indicated that the RBA might not conclude its tightening cycle. Survey findings suggest that inflation is expected to remain persistently high over the next year, leading to anticipations of at least two more rate hikes.
AUD Tests Lower Boundary After Dropping Below 0.6700
On Friday, AUD/USD was around 0.6690. Daily technical analysis indicates that the pair is probing the lower boundary of an ascending channel, hinting that bullish sentiment may be dwindling. Although the 14-day Relative Strength Index (RSI) remains above the midpoint at 56.8, it’s decreased from previous highs, suggesting a slowing bullish momentum.
Immediate resistance is noted at the nine-day exponential moving average (EMA) at 0.6700. If it surpasses this short-term average, there’s potential for a rebound towards 0.6766, which would be the highest since October 2024 before approaching the upper boundary of the channel near 0.6850.
Conversely, a break below the channel’s boundary could push the AUD/USD to test the 50-day EMA at 0.6628. If this trend persists, prices may dip further towards 0.6414, the lowest level seen since June 2025.
