The Australian dollar (AUD) continued to rise since Wednesday with the AUD/USD pair getting a boost in anticipation of rate cuts by the Federal Reserve (Fed), which added pressure on the US dollar (USD).
Australian economy remains resilient
According to the latest data, the Australian economy has remained robust with positive employment and growing incomes. The enhanced Purchasing Managers Index (PMI) data for December has also offered support to the Aussie. The seasonally adjusted Aussie employment change for November rose to 61.5K compared to the 11.0K that was expected. Unemployment rate rose to 3.9% from 3.7% previously. The preliminary Judo Bank Australia composite PMI also increased to 47.4 from the 46.2 previous reading. The manufacturing PMI for the same period came in at 47.8, a small rise from the 47.7 previously. Furthermore, the services PMI rose to 47.6 compared to the previous reading of 46.0.
Australian Data and events to watch out for this week
Tomorrow, investors will turn their attention to the release of the meeting minutes from the Reserve Bank of Australia (RBA) as well as the US building permits and housing starts data. Additionally, on Wednesday, the People’s Bank of China (PBoC) is expected to announce its interest rate decision, which could influence the Aussie dollar.
Australian and Chinese relations have been improving with Australian Trade Minister Don Farrell expressing his confidence on Sky News TV that China will lift its penalising tariffs on Australian wine. China has already removed previously imposed trade restrictions on the majority of Australian exports.
According to the National Bureau of Statistics of China, the Chinese economy has slightly grown in November, as both factory production and retail sales increased. On the other hand, the property market remained vulnerable despite expectations that the government will provide policy support. The market anticipates further stimulus measures to encourage demand in the property sector, along with lending rate cuts in the first half of 2024. If there is any positive news regarding the Chinese economy, then the Aussie will rise, since China is Australia’s largest trading partner.
The preliminary Purchasing Managers Index (PMI) for December helped to offer support for the USD. S&P Global services PMI rose to 51.3 from 50.8 prior. Manufacturing PMI dropped to 48.2 from 49.4.
US Retail Sales (MoM) were up 0.3% in November, compared to the expected drop of 0.1%. Initial Jobless Claims for the week ending on the 8th of December came in at 202K against the 220K expected. Investors will now turn their attention to the consumer confidence and existing home sales change on Wednesday. On Friday, the key release will be the US core personal consumption expenditure price index (PCE) report.
Federal Reserve and rate cuts
The Federal Open Market Committee’s (FOMC) dovish statement and Fed policymakers’ dovish comments have weighed on the greenback. On Friday, Atlanta Fed President Raphael Bostic said that he expects an interest rate cut in the third quarter of 2024 if inflation continues to cool off. Additionally, Chicago Fed President Austan Goolsbee noted that it was possible that the Fed could cut rates as early as next March. Fed interest rates have been kept at 5.5% in the central bank’s December policy meeting and now markets are anticipating around three rate cuts for 2024.