13 Jan 2025

• Australian Dollar continues to lose ground as markets price in a 75% odds of an RBA rate cut next month.
• China's trade surplus widened in December, with the Trade Balance reaching 104.84 billion and Exports increasing by 10.7% YoY.
• The US Dollar Index reached 109.98, its highest level since November 2022, driven by strong US labor data.
• The Australian Dollar (AUD) continues its decline for the fifth consecutive day against the US Dollar (USD) on Monday, trading at its lowest point since April 2020. The AUD/USD pair is experiencing downward pressure as market participants now anticipate a 75% likelihood of a rate reduction by the Reserve Bank of Australia (RBA) in the upcoming month. Investors are likely to pay close attention to the Australian employment data, which is scheduled for release later this week, as it may provide further insights into the RBA's policy direction.
  
  Earlier in the Asian session, the Australian Dollar saw a rebound following the publication of the TD-MI Inflation Gauge, which increased by 0.6% month-over-month in December, marking a notable rise from the 0.2% growth observed in November and reaching its highest level since December 2023. On a year-over-year basis, the Inflation Gauge experienced a 2.6% increase, a decrease from the prior 2.9% rise.
• The Australian Dollar (AUD) received some support from recent stimulus initiatives in China, reflecting the strong trading ties between Australia and China. Consequently, any shifts in China's economic landscape could have a considerable impact on Australian markets. During a meeting in Beijing on Monday, the China Foreign Exchange Committee (CFXC) committed to bolstering the Chinese Yuan, under the auspices of the People's Bank of China (PBOC). In a separate announcement, the PBOC and the State Administration of Foreign Exchange (SAFE), which oversees foreign exchange in China, revealed an increase in the macro-prudential adjustment parameter for cross-border financing, raising it from 1.5 to 1.75, effective January 13, 2025.
  
  In December, China's trade surplus expanded, with the Trade Balance reaching $104.84 billion, exceeding the anticipated $99.8 billion and the previous figure of $97.44 billion. Exports experienced a year-over-year increase of 10.7%, surpassing the forecasted growth of 7.3% and the prior increase of 6.7%. Conversely, Imports saw a year-over-year rise of 1%, contrary to the expected decline of 1.5% and the previous drop of 3.9%.

• Australian Dollar extends losses due to rising odds of Fed keeping rates steady this month

• The US Dollar Index (DXY), which measures the performance of the US Dollar against six prominent currencies, has risen to approximately 110.00, nearing its highest level since November 2022. The Dollar has gained strength following robust labor market data for December, which is expected to support the US Federal Reserve's (Fed) decision to maintain interest rates in January.
  
  The strong employment figures released on Friday resulted in a notable increase in US Treasury yields, with the 2-year and 10-year bond yields reaching 4.38% and 4.76%, respectively, at the time of this report.
  
  According to data from the US Bureau of Labor Statistics (BLS) published on Friday, Nonfarm Payrolls (NFP) rose by 256,000 in December, significantly surpassing market forecasts of 160,000 and exceeding the revised November figure of 212,000 (previously reported as 227,000).
  
  The US Unemployment Rate decreased to 4.1% in December, down from 4.2% in November. However, annual wage inflation, as indicated by the change in Average Hourly Earnings, experienced a slight decline to 3.9% from 4% in the previous report.
  
  The most recent FOMC Meeting Minutes revealed that policymakers concur that the adjustment process may take longer than initially expected, owing to recent unexpectedly high inflation readings and the potential impacts of changes in trade and immigration policy under the incoming Trump administration.
• Federal Reserve Board of Governors member Michelle Bowman joined other Fed officials this week as they strive to mitigate market reactions to a significantly tighter schedule of rate cuts anticipated for 2025, which diverges from earlier expectations held by many market participants. Kansas Fed President Jeffrey Schmid garnered attention on Thursday by asserting that the majority of the Federal Reserve's mandated objectives have recently been met. He highlighted the necessity of reducing the Fed's balance sheet, indicating that interest rate policy is nearing its long-term equilibrium. Schmid also remarked that any forthcoming rate reductions should be implemented gradually and informed by economic data.
  
  In December, ANZ Job Advertisements experienced a month-over-month increase of 0.3%, rebounding from a revised decline of 1.8% in November. This uptick suggests that the labor market remains robust despite the prevailing high interest rates.
  
  On Monday, People's Bank of China (PBOC) Governor Pan Gongsheng announced that "interest rate and reserve requirement ratio (RRR) tools will be employed to ensure sufficient liquidity." Gongsheng reiterated China's intention to expand the fiscal deficit and underscored that China will persist as a key contributor to the global economy.
  
  In Australia, the monthly Consumer Price Index (CPI) rose by 2.3% year-over-year in November, exceeding the market expectation of 2.2% and reflecting an increase from the 2.1% rise recorded in the preceding two months. This marks the highest reading since August. Nevertheless, the figure remains within the Reserve Bank of Australia’s target range of 2–3% for the fourth consecutive month, supported by the ongoing effects of the Energy Bill Relief Fund rebate.

• 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.