Australian Dollar halts its losing streak, draws support from China's stimulus measures

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• Australian Dollar received support as the China Foreign Exchange Committee pledged to support the Chinese Yuan.

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• China's trade surplus widened in December, with the Trade Balance reaching 104.84 billion and Exports increasing by 10.7% YoY.

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• The US Dollar Index remains near 109.97, its highest level since November 2022, driven by strong US labor data.

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The Australian Dollar (AUD) pauses its four-day losing streak against the US Dollar (USD) on Monday, stabilizing near its lowest level since April 2020. The AUD found some support from China's recent stimulus measures, helping the AUD/USD pair stage a modest recovery. Given the close trading relationship between Australia and China, any changes in China's economic conditions could significantly influence Australian markets.

The China Foreign Exchange Committee (CFXC) pledged to support the Chinese Yuan during a meeting in Beijing on Monday, held under the guidance of the People’s Bank of China (PBOC). Separately, the PBOC and the State Administration of Foreign Exchange (SAFE), China’s FX regulator, announced an increase in the macro-prudential adjustment parameter for cross-border financing from 1.5 to 1.75, effective January 13, 2025.

China's trade surplus grew in December, with the Trade Balance reaching $104.84 billion, surpassing the expected $99.8 billion and the previous balance of $97.44 billion. Exports rose by 10.7% year-over-year, exceeding the forecasted 7.3% and the previous 6.7%. Meanwhile, Imports increased by 1% year-over-year, against the expected decline of 1.5% and the prior 3.9% fall.

The AUD also received support after the release of the TD-MI Inflation Gauge, which climbed by 0.6% month-over-month in December, a significant acceleration from the 0.2% increase recorded in November, reaching its highest level since December 2023. On an annual basis, the Inflation Gauge rose by 2.6%, down from the previous 2.9% increase.

The Aussie Dollar faces downward pressure as markets now price in a 75% probability of a rate cut by the Reserve Bank of Australia (RBA) next month. Investors are expected to closely monitor Australian employment data, set to be released later this week, for additional clarity on the RBA's policy outlook.

Australian Dollar could resume its decline amid increased hawkish mood surrounding Fed

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• The US Dollar Index (DXY), which tracks the US Dollar’s performance against six major currencies, remains above 109.50, close to the highest since November 2022. The Greenback strengthened as the robust US labor market data for December will likely reinforce the US Federal Reserve's (Fed) stance to keep interest rates steady in January.

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• Friday's strong US jobs data led to a surge in US yields, with the 2-year and 10-year US Treasury bond yields standing at 4.38% and 4.76%, respectively, at the time of writing.

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• Data from the US Bureau of Labor Statistics (BLS), released on Friday, reported that Nonfarm Payrolls (NFP) increased by 256K in December, significantly exceeding market expectations of 160K and surpassing the revised November figure of 212K (previously reported as 227K).

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• The US Unemployment Rate edged down to 4.1% in December from 4.2% in November. However, annual wage inflation, measured by the change in Average Hourly Earnings, dipped slightly to 3.9% from 4% in the prior reading.

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• The latest FOMC Meeting Minutes indicated that policymakers agree that the process could take longer than previously anticipated due to recent hotter-than-expected readings on inflation and the effects of potential changes in trade and immigration policy under President-elect Trump’s administration.

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• Federal Reserve Board of Governors member Michelle Bowman added her voice to a chorus of Fed speakers this week as policymakers work double-duty to try and smooth over market reactions to a much tighter pace of rate cuts in 2025 than many market participants had previously anticipated.

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• Kansas Fed President Jeffrey Schmid made headlines on Thursday, stating that most of the Federal Reserve's mandated targets have recently been achieved. Schmid emphasized the need to reduce the Fed's balance sheet, suggesting that interest rate policy is approaching its long-term equilibrium. He noted that any future rate cuts should be gradual and guided by economic data.

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• ANZ Job Advertisements increased by 0.3% month-over-month in December, recovering from a revised 1.8% decline in November. This improvement indicates that the labor market remains resilient despite elevated interest rates.

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• People's Bank of China (PBOC) Governor Pan Gongsheng stated on Monday that "interest rate and reserve requirement ratio (RRR) tools will be utilized to maintain ample liquidity." Gongsheng reaffirmed China's plans to increase the fiscal deficit and emphasized that China will continue to be a driving force for the global economy.

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• Australia's monthly Consumer Price Index (CPI) rose 2.3% year-over-year in November, surpassing the market forecast of 2.2% and marking an increase from the 2.1% rise seen in the previous two months. This is the highest reading since August. However, the figure remains within the RBA’s target range of 2–3% for the fourth consecutive month, aided by the ongoing impact of the Energy Bill Relief Fund rebate.

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Australian Dollar moves below 0.6150; bullish divergence seen on RSI

The AUD/USD pair trades around 0.6160 on Monday, maintaining a bearish outlook as it continues to move within a descending channel on the daily chart. The 14-day Relative Strength Index (RSI) is at the 30 level, signaling an oversold condition and suggesting a potential upward correction soon.

In terms of support, the AUD/USD pair could test the lower boundary of the descending channel near the 0.5950 level.

Immediate resistance is found near the nine-day Exponential Moving Average (EMA) at 0.6196, followed by the 14-day EMA at 0.6214. A stronger resistance lies at the upper boundary of the descending channel, around 0.6230.

AUD/USD: Daily Chart