AUD/USD Nears 0.6573 as CPI, FOMC Meeting Loom
The Australian Dollar (AUD) is struggling to breach the 0.6600 level against a robust US Dollar (USD) during Monday’s early Asian trading. A strong USD and the uptick in US Treasury yields are applying downward pressure to the [AUD/USD] exchange rate.
Market focus now turns to the upcoming Australian Consumer Price Index (CPI) and the Federal Open Market Committee (FOMC) meeting, which are poised to provide new directional cues. Currently, the pair is trading at approximately 0.6573, reflecting a slight decline of 0.11%.
Economic Indicators and Central Bank Expectations
The US economy showed signs of moderated inflation, with December’s Core Personal Consumption Expenditures Price Index (PCE) climbing modestly month-on-month and recording a softer year-on-year increase. The comprehensive PCE also mirrored this trend.
Meanwhile, an unexpected surge in US pending home sales eclipsed forecasts, signalling potential housing market resilience. As inflationary pressures show signs of easing, market participants speculate on the Federal Reserve’s next move.
According to the CME FedWatch Tool, futures markets are currently pricing a rate cut by the Fed in March as having a probability of over 50%. In Australia, recent economic stimulus by Chinese authorities provided a tailwind to the AUD, which is considered a proxy for China’s economic prospects.
Measures to enhance liquidity and the People’s Bank of China’s decision to lower the reserve ratio requirement have fueled optimism. There is also anticipation around potential Chinese interventions to stabilize the stock market.
Investor attention will be on Australia’s December retail sales data, expected on Tuesday, and the CPI inflation data, slated for release on Wednesday. Projections suggest a cooling off in the CPI to 3.7% year-on-year for December. The FOMC’s interest rate decision, also due Wednesday, is expected to maintain the current monetary policy stance.
AUD/USD Technical Outlook
In the latest four-hour timeframe, the Australian dollar is trading near a pivotal juncture, as indicated by the pivot point at approximately 0.65879, represented by the green line. This level is crucial as it acts as a neutral marker, with prices fluctuating slightly above and below.
Under this pivot point, we observe three lower-level support lines, suggesting potential floors where the currency could find a reprieve from selling pressure. The closest support level is at around 0.65674, with subsequent levels at 0.65250 and 0.64885, which could come into play if the bearish momentum persists.
Conversely, resistance levels are positioned above the pivot point, at approximately 0.66492, 0.67251, and 0.67500, presenting barriers the currency must overcome to shift towards a bullish outlook. The chart exhibits a bearish flag formation in the four-hour frame, a classic continuation pattern, which typically signals that the previous downtrend may resume.
The Relative Strength Index (RSI), which shows neither oversold nor overbought conditions at a reading near 49, further supports this pattern by indicating the possibility of further price movement in either direction.
Additionally, the 50-period Exponential Moving Average (EMA) is hovering around 0.65979, just above the current price, reinforcing the resistance level. Should prices remain below the EMA, it could confirm the continuation of the bearish trend.
Traders will likely keep a close watch on these technical levels for signs of a trend reversal or further confirmation of the prevailing downtrend.
AUD/USD Live Chart
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