Australian Dollar extends gains as US Dollar continues downward correction

• The Australian Dollar holds its position as the RBA Minutes highlight the need for restrictive monetary policy.
• RBA Board members also emphasized that “nothing can be ruled in or out” regarding future monetary policy adjustments.
• The US Dollar may appreciate as the incoming Trump administration is expected to prioritize tax cuts and impose higher tariffs.

The Australian Dollar (AUD) stays steady against the US Dollar (USD) following Tuesday’s release of the Reserve Bank of Australia’s (RBA) November Meeting Minutes. The minutes indicate that the RBA board remains cautious about the potential for inflation to rise further, emphasizing the need for restrictive monetary policy.

RBA Board members also indicate no “immediate need” to adjust the cash rate, though they left the door open for future changes, noting that nothing can be ruled in or out. Current forecasts are based on the technical assumption that the cash rate will remain unchanged until mid-2025.

The Australian Dollar gained support following hawkish remarks from Reserve Bank of Australia (RBA) Governor Michele Bullock last week. Bullock emphasized that current interest rates are sufficiently restrictive and will remain unchanged until the central bank is confident about the inflation outlook.

An official from China’s National Development and Reform Commission (NDRC) stated on Tuesday that the country has “ample policy room and tools to support economic recovery.” The official expressed confidence in China’s economic trajectory, anticipating that the recovery momentum will persist through November and December. Any change in the Chinese economy could impact the Australian markets as both nations are close trade partners.

The US Dollar (USD) remains in a downward correction despite recent hawkish remarks from Federal Reserve (Fed) officials. However, the Greenback’s downside may be limited as investors anticipate that the incoming Trump administration will prioritize tax cuts and impose higher tariffs. These measures could fuel inflation, potentially slowing the pace of Fed rate cuts.

Traders are now focused on the upcoming October US Building Permits and Housing Starts data, which is set to be released on Tuesday.

Australian Dollar receives support following RBA Meeting Minutes release

• Fed Chair Jerome Powell downplayed the likelihood of imminent rate cuts, highlighting the economy’s resilience, robust labor market, and persistent inflationary pressures. Powell remarked, “The economy is not sending any signals that we need to be in a hurry to lower rates.”
• On Friday, Chicago Fed President Austan Goolsbee stated that markets often overreact to changes in interest rates. Goolsbee emphasized the importance of the Fed adopting a cautious, gradual approach in moving toward the neutral rate.
• Meanwhile, Boston Fed President Susan Collins tempered expectations for continued rate cuts in the near term while maintaining market confidence in a potential rate reduction in December. Collins stated, “I don’t see a big urgency to lower rates, but I want to preserve a healthy economy.”
• US Retail Sales increased by 0.4% month-over-month in October, exceeding the market consensus of 0.3%. Additionally, the NY Empire State Manufacturing Index for November posted an unexpected surge, coming in at 31.2 compared to the anticipated 0.7 decline, signaling robust manufacturing activity.
• China’s Retail Sales rose by 4.8% year-over-year in October, surpassing the expected 3.8% and the 3.2% increase seen in September. Meanwhile, Industrial Production grew by 5.3% YoY, below the forecasted 5.6% and the 5.4% growth recorded in the previous period.
• The seasonally adjusted unemployment rate in Australia held steady at 4.1% in October for the third month in a row, matching market expectations. However, employment change data revealed only 15.9K new jobs added in October, which fell short of the anticipated 25.0K.
• Australia’s Consumer Inflation Expectations dropped to 3.8% in November, down from 4.0% in the previous month, reaching the lowest level since October 2021.

Australian Dollar tests 0.6500, with the next key resistance located at the nine-day EMA

The AUD/USD pair hovers near 0.6500 on Tuesday, signaling short-term bearish momentum on the daily chart as it remains below the nine-day Exponential Moving Average (EMA). Additionally, the 14-day Relative Strength Index (RSI) sits below the 50 mark, reaffirming the bearish trend.

On the downside, the AUD/USD pair faces significant support around the 0.6400 level. A decisive break below this psychological barrier could amplify selling pressure, potentially driving the pair toward its yearly low of 0.6348, last recorded on August 5.

The 0.6500 level serves as immediate resistance. A sustained move above this threshold might push the AUD/USD pair toward the nine-day EMA at 0.6517, followed by the 14-day EMA at 0.6541. Surpassing these levels could pave the way for a rally toward the three-week high of 0.6687. 

AUD/USD: Daily Chart