Australian Dollar gains ground on improved National Australia Bank’s Business Confidence.

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• Australian Dollar gains ground on improved National Australia Bank’s Business Confidence.
• Australian share market rise has the potential to provide support for the AUD.
• National Australia Bank’s Business Confidence improved to -1 in December from -9 prior.
• US Dollar experiences a positive bias on risk aversion due to the heightened geopolitical situation.

The Australian Dollar (AUD) edges higher on Tuesday after registering losses in the previous session. The improved National Australia Bank’s Business Confidence might have contributed to underpinning the Aussie Dollar. Moreover, the Australian Dollar might find support from the improved performance of Australia’s share market. However, the US Dollar (USD) managed to strengthen despite lower US Treasury yields, leading to some pressure on the AUD/USD pair.

Australia’s currency encounters headwinds due to speculation surrounding possible early interest rate cuts by the Reserve Bank of Australia (RBA). This speculation is driven by recent indicators such as subdued Aussie Consumer Confidence and Employment Change figures, contributing to concerns about the economic outlook.

The Chair of Australia’s sovereign wealth fund Peter Costello commented that inflation in Australia is showing early signs of moderation. However, Costello emphasizes that there is still a considerable distance to cover to bring prices back within the RBA’s target band. While inflation has decreased from its peak, it remains significantly outside the target range of 2.0% to 3.0%.

The US Dollar Index (DXY) holds steady following recent gains. The US Dollar experiences buying demand driven by risk aversion sentiment, a trend likely linked to the heightened geopolitical situation in the Middle East. Military actions conducted by the United States (US) and the United Kingdom (UK), including a new round of air strikes in Yemen targeting Iran-led Houthi terrorists, have contributed to an environment where investors seek safety in the safe-haven US Dollar.

US Conference Board has reported a slight improvement in the Leading Economic Index for December, moving from -0.5% in November to -0.1% in December. This surpassed expectations for an improvement to -0.3%. Looking ahead, Tuesday is expected to bring the release of the Richmond Fed Manufacturing Index for January.

The Australian Dollar trades around 0.6580 on Tuesday, with immediate resistance noted at the psychological level of 0.6600. A decisive breakthrough above this psychological barrier may propel the AUD/USD pair to surpass the nine-day Exponential Moving Average (EMA) at 0.6609, followed by a notable level at 0.6650. Should the pair breach this significant level, it could set the stage for a potential test of the psychological barrier at 0.6700. Conversely, on the downside, key support is anticipated at the 50% retracement level of 0.6568, before reaching the major support level at 0.6550. A breach below the latter might trigger a downward move, prompting the AUD/USD pair to explore levels around the psychological mark of 0.6500, coupled with the 61.8% Fibonacci retracement level at 0.6497.

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