The Australian Dollar (AUD) kicked off the new week on a strong note against the US Dollar (USD), buoyed by fresh selling pressure on the USD. The AUD/USD pair is trading above the critical 0.6200 support level, boosted by favorable economic data from China and a generally risk-on market environment. China's GDP report, released last Friday, exceeded expectations with a 5.4% year-on-year expansion in the fourth quarter, lending support to the Australian currency.
The positive sentiment around the AUD/USD pair is further bolstered by the People's Bank of China's decision to maintain its one-year loan prime rate and five-year rate, which did not deter the risk-on mood in the market. Meanwhile, the USD has attracted fresh sellers, eroding much of last Friday's gains amid speculation that the Federal Reserve will implement two interest rate cuts this year. These factors have contributed to the pair's upward momentum.
Despite the upbeat start, the AUD/USD pair remains below last week's swing high, potentially discouraging traders from making aggressive bullish bets. Market participants are keeping a close watch on President Trump's inaugural address scheduled for later this Monday, coinciding with a US holiday in observance of Martin Luther King Jr. Day. Concerns over the US-China trade war could pose a challenge to further gains for the Aussie ahead of Trump's address.
Technical indicators also play a significant role in shaping market sentiment. The AUD/USD is trading above the 100-period Exponential Moving Average (EMA) on the 4-hour chart, a key resistance level. Bulls are advised to wait for sustained strength and acceptance above this EMA before placing fresh bets. The oscillators on the 4-hour chart have been gaining positive traction, suggesting that the pair might continue its upward trajectory.
However, caution remains advised as any subsequent decline could drag spot prices below the 0.6100 mark, potentially targeting the 0.6065-0.6060 support region and further down to the psychological 0.6000 mark. On the flip side, should the pair manage to overcome the 0.6245-0.6250 intermediate hurdle, it could aim for reclaiming the 0.6300 mark.
The broader market dynamics are also influenced by the Federal Reserve's monetary policy stance. The expectation of interest rate cuts by the Fed could lead to a depreciation of the USD, thereby supporting the AUD/USD pair's upward movement. Traders are keenly monitoring these developments to assess potential trading opportunities.