The Australian Dollar (AUD) demonstrated resilience on Monday, as it appreciated against the US Dollar (USD) despite a cautious market atmosphere ahead of President-elect Donald Trump's inauguration. Trading near 0.6210, the AUD/USD currency pair sought to breach the descending channel on the daily chart. Support for the Australian Dollar emerged from both robust Chinese economic data and rising metal prices, which provided a counterbalance to market unease.
The AUD's recent performance comes after a two-day losing streak against the USD, with renewed support from an increase in metals prices. The initial support level for the AUD/USD pair stands at the nine-day Exponential Moving Average (EMA) at 0.6202, while a more substantial support level is located near the recent low at 0.6131. Immediate resistance is encountered at the 14-day EMA at 0.6210, aligned with the upper boundary of the descending channel.
China's economic health plays a pivotal role in influencing the Australian Dollar due to China's status as Australia's largest trading partner. The price of Iron Ore, a key export commodity for Australia, serves as a significant driver for the AUD. Generally, when Iron Ore prices rise, there is increased demand for the Australian Dollar, leading to its appreciation. Conversely, a decline in Iron Ore prices can exert downward pressure on the currency.
The Reserve Bank of Australia (RBA) remains focused on maintaining a stable inflation rate between 2-3% by adjusting interest rates as needed. The central bank also employs quantitative easing and tightening strategies to modulate credit conditions, with easing typically viewed as AUD-negative and tightening as AUD-positive.
In addition to these developments, US economic indicators have exhibited growth. The Consumer Price Index increased by 2.9% year-over-year in December, aligning with market forecasts and increasing from November's 2.7%. Furthermore, December's annual Retail Sales rose by 3.7%, surpassing both the expected 3.5% and November's 3.0%. Industrial Production also showed strength, arriving at 6.2% compared to the forecasted 5.4% and matching November's figures.
Scott Bessent emphasized the importance of strategic economic investments, stating:
"Productive investment that grows the economy must be prioritized over wasteful spending that drives inflation."
This perspective aligns with the broader economic strategies adopted by central banks worldwide as they navigate the complexities of global economic shifts.