Australian Dollar extends losses after shedding recent gains as US Dollar strengthens

• The Australian Dollar retraces daily gains despite robust economic figures from China released on Friday.
• China’s GDP grew 5.4% YoY in Q4 of 2024 after reporting a 4.6% expansion in Q3.
• US Retail Sales increased by 0.4% MoM in December, against the expected 0.6% growth.

The Australian Dollar (AUD) loses daily gains against the US Dollar (USD) on Friday. However, the AUD/USD pair gained ground due to the robust economic data from China. China’s Gross Domestic Product (GDP) grew 5.4% over the year in the fourth quarter of 2024 after reporting a 4.6% expansion in the third quarter. Data beat the market consensus of 5% in the reported period, by a wide margin.

Chinese GDP rate rose 1.6% QoQ in Q4 2024, having increased 0.9% in the previous quarter. This figure matched the expectations of 1.6%. The annual December Retail Sales increased by 3.7% vs. the 3.5% expected and 3.0% prior, while Industrial Production arrived at 6.2% vs. the 5.4% forecast and November’s 5.4%.

The National Bureau of Statistics (NBS) shared its outlook on the economy during a press conference on Friday. The NBS highlighted that economic operations continue to face significant difficulties and challenges. It noted that the impact of changes in the external environment is intensifying, while domestic demand remains insufficient.

Australia's seasonally adjusted Unemployment Rate rose to 4.0% in December, compared to 3.9% in November, aligning with market expectations. Employment increased by 56.3K in December, up from 28.2K in November (revised from 35.6K) and significantly exceeding the market forecast of 15.0K.

Bjorn Jarvis, head of labor statistics at the ABS, highlighted key data points: "The employment-to-population ratio rose 0.1% percentage points to a new record of 64.5%. This was 0.5 percentage points higher than a year ago and 2.3 percentage points above pre-COVID-19 levels. The increase in both employment and unemployment led to a further rise in the participation rate, which reflects the proportion of the population either employed or actively seeking work."

Australian Dollar declines as US Dollar edges higher despite the dovish Fed

• The US Dollar Index (DXY), which tracks the USD's performance against six major currencies, halts its four-day losing streak, trading near 109.10 at the time of writing. However, the Greenback encountered difficulties as weaker US Retail Sales and persistent inflation data bolstered market expectations that the Fed will reduce interest rates twice this year.
• Growing expectations that the Fed will cut interest rates twice this year have driven US Treasury bond yields lower, with the 2-year and 10-year notes currently at 4.23% and 4.60%, respectively. Both yields are on course for a weekly decline of over 3%.
• US Retail Sales rose by 0.4% MoM in December, reaching $729.2 billion. This reading was weaker than the market expectations of a 0.6% rise and lower than the previous reading of a 0.8% increase (revised from 0.7%).
• Chicago Federal Reserve Bank President Austan Goolsbee stated on Thursday that he has grown increasingly confident over the past several months that the job market is stabilizing at a level resembling full employment, rather than deteriorating into something worse, according to Reuters.
• The US Consumer Price Index increased by 2.9% year-over-year in December, up from 2.7% in November, aligning with market expectations. Monthly, CPI rose 0.4%, following a 0.3% increase in the previous month.
• US Core CPI, which excludes volatile food and energy prices, rose 3.2% annually in December, slightly below November's figure and analysts' forecasts of 3.3%. Monthly, core CPI edged up 0.2% in December 2024.
• On Wednesday, Scott Bessent, Donald Trump’s nominee for Treasury Secretary, emphasized the importance of maintaining the US Dollar as the world’s reserve currency for the nation's economic stability and future prosperity. Bessent stated “Productive investment that grows the economy must be prioritized over wasteful spending that drives inflation,” per Bloomberg.
• The Federal Reserve reported in its latest Beige Book survey, released on Wednesday, that economic activity saw slight to moderate growth across the twelve Federal Reserve Districts in late November and December. Consumer spending increased moderately, driven by strong holiday sales that surpassed expectations. However, manufacturing activity experienced a slight decline overall, as some manufacturers stockpiled inventories in anticipation of higher tariffs.

Technical Analysis: Australian Dollar remains above 0.6200 support near 14-day EMA

The AUD/USD pair trades near 0.6220 on Friday, attempting to break above the descending channel on the daily chart. A successful breakout would weaken the prevailing bearish bias. The 14-day Relative Strength Index (RSI) also trends upward toward the 50 level, signaling potential recovery momentum.

The AUD/USD pair encounters immediate resistance at the upper boundary of the descending channel, approximately at 0.6220.

On the downside, initial support is seen at the 14-day Exponential Moving Average (EMA) at 0.6213, followed by the nine-day EMA at 0.6206. A more substantial support level is located near the lower boundary of the descending channel, around the 0.5920 mark.

AUD/USD: Daily Chart