16 Jan 2025

• The Australian Dollar depreciates as the Unemployment Rate rises to 4.0% in December.
• Australia’s Employment increased by 56.3K in December, up from 28.2K in November.
• US Retail Sales could increase by 0.6% month-over-month in December, against the previous 0.7% growth.
• The Australian Dollar (AUD) ended its three-day upward trend against the US Dollar (USD) following the release of the Australian Employment report on Thursday. The Australian Bureau of Statistics (ABS) indicated that the seasonally adjusted Unemployment Rate increased to 4.0% in December, up from 3.9% in November, which was in line with market expectations.
  
  In December, Australia's Employment rose by 56.3K, a significant increase from the revised figure of 28.2K in November (originally reported as 35.6K) and well above the market forecast of 15.0K.
  
  Bjorn Jarvis, the head of labor statistics at the ABS, emphasized several important data points: "The employment-to-population ratio increased by 0.1 percentage points, reaching a new high of 64.5%. This figure is 0.5 percentage points higher than a year ago and 2.3 percentage points above pre-COVID-19 levels. The simultaneous rise in both employment and unemployment contributed to an increase in the participation rate, which indicates the proportion of the population that is either employed or actively seeking employment."
• US President-elect Donald Trump's economic team considered a gradual increase in import tariffs. This optimism has bolstered risk-on  market sentiment  and supported risk-sensitive currencies like the AUD and contributed to the appreciation of the AUD/JPY pair.

• Australian Dollar appreciates as US Dollar depreciates following CPI Inflation

• The US Dollar Index (DXY), which assesses the performance of the US Dollar against six prominent currencies, is currently trading around 109.00. The Greenback continues to decline following the release of US Consumer Price Index (CPI) inflation data for December, which was lower than anticipated, increasing speculation that the US Federal Reserve (Fed) may implement two interest rate cuts this year.
  
  In December, the US Consumer Price Index rose by 2.9% year-over-year, an increase from 2.7% in November, which was in line with market expectations. On a month-to-month basis, CPI increased by 0.4%, following a 0.3% rise in the preceding month.
  
  The US Core CPI, which excludes the more volatile food and energy sectors, saw an annual increase of 3.2% in December, slightly below the November figure and the analysts' prediction of 3.3%. On a monthly basis, core CPI experienced a modest rise of 0.2% in December 2024.
  
  The US Producer Price Index for final demand increased by 0.2% month-over-month in December, following an unchanged 0.4% rise in November, which was softer than the anticipated 0.3%. Year-over-year, the PPI rose by 3.3% in December, marking the highest increase since February 2023, after a 3.0% rise in November. This figure fell short of the consensus estimate of 3.4%.
  
  On Wednesday, Scott Bessent, nominated by Donald Trump for the position of Treasury Secretary, underscored the significance of preserving the US Dollar as the global reserve currency for the economic stability and future prosperity of the nation. Bessent remarked, “Productive investment that grows the economy must be prioritized over wasteful spending that drives inflation,” according to Bloomberg.
• The Federal Reserve's most recent Beige Book survey, published on Wednesday, indicated that economic activity experienced slight to moderate growth across the twelve Federal Reserve Districts during late November and December. Consumer spending saw a moderate increase, largely fueled by robust holiday sales that exceeded expectations. Conversely, manufacturing activity faced a slight overall decline, as some manufacturers opted to build up inventories in anticipation of impending higher tariffs.
  
  Michelle Bowman, a member of the Federal Reserve Board of Governors, joined other Fed officials last week in addressing market reactions to a more aggressive pace of rate cuts anticipated in 2025, which has caught many market participants off guard.
  
  In Australia, the Westpac Consumer Confidence Index fell by 0.7% to 92.1 points, highlighting persistent consumer pessimism. This drop in consumer confidence has raised concerns regarding the future of interest rates and the overall economic health of Australia. Currently, markets are estimating a 67% probability that the Reserve Bank of Australia will reduce its cash rate of 4.35% by 25 basis points in February, with a complete rate cut expected by April.
  
  On Monday, the China Foreign Exchange Committee (CFXC) committed to supporting the Chinese Yuan during a meeting in Beijing, convened under the auspices of the People’s Bank of China (PBOC). Additionally, the PBOC and the State Administration of Foreign Exchange (SAFE), which oversees foreign exchange regulations in China, announced an increase in the macro-prudential adjustment parameter for cross-border financing from 1.5 to 1.75, effective January 13, 2025.
• 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

• Technical Analysis: Australian Dollar could test the 0.6200 support near 14-day EMA

• The AUD/USD pair is currently trading at approximately 0.6220 on Thursday, as it attempts to breach the upper limit of the descending channel observed on the daily chart. A successful breakout could diminish the prevailing bearish sentiment. The 14-day Relative Strength Index (RSI) is trending upwards towards the 50 mark, suggesting a potential recovery.
  
  In terms of resistance, the AUD/USD pair encounters immediate challenges at the upper edge of the descending channel, situated around 0.6220.
  
  On the support side, the AUD/USD pair may test the 14-day Exponential Moving Average (EMA) at 0.6214, followed by the nine-day EMA at 0.6206. A more substantial support level is located near the lower boundary of the descending channel, approximately at the 0.5920 mark.