Australian Dollar loses ground as the US Dollar attempts to recover recent losses.

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• Australian Dollar loses ground as the US Dollar attempts to recover recent losses.
• Australia’s inflation is likely to stay above the RBA’s target range of 2.0–3.0%.
• US Dollar faced downward pressure despite the upbeat US PMI data.

The Australian Dollar (AUD) loses its ground for the second successive day on Thursday. The AUD/USD pair encountered downward pressure following the release of positive S&P Global Purchasing Managers Index (PMI) data from the United States (US) on Wednesday. The upbeat data could decrease the probability of rate cuts by the Federal Reserve (Fed) in March, prompting a decline in the AUD/USD pair. Additionally, according to the CME’s FedWatch tool, market-wide bets on a March rate cut from the Fed have now dropped to below 40%, a significant decline from around 80% recorded just a month ago.

Australia’s Dollar experienced a decline, despite the release of improved preliminary Purchasing Managers Index (PMI) data from Australia on Wednesday. The Reserve Bank of Australia’s (RBA) Bulletin indicates that over the past six months, businesses have generally anticipated a moderation in their price growth, with the expectation that, on average, prices will stay above the RBA’s inflation target range of 2.0–3.0%. The Bulletin also notes that slower growth in demand and increased competition are anticipated factors that will contribute to a further deceleration in the growth of firms’ prices in the upcoming quarters.

The US Dollar Index (DXY) makes efforts to recover from recent losses, supported by improved US Treasury yields. However, the US Dollar (USD) faces challenges due to a risk-on market sentiment ahead of the Federal Reserve’s (Fed) interest rate decision on January 31. Investors will likely watch the US Gross Domestic Product Annualized (Q4) data scheduled for release on Thursday. This data will provide insights into the overall economic performance and could influence market expectations regarding the Fed’s monetary policy stance.

The Australian Dollar trades around 0.6570 on Thursday, with immediate resistance seen at the psychological level of 0.6600, which aligns with the 23.6% Fibonacci retracement level at 0.6606, followed by the 14-day Exponential Moving Average (EMA) at 0.6617. A decisive move above this resistance zone could potentially propel the AUD/USD pair toward the major barrier at 0.6650. On the downside, the pair might revisit the weekly low at 0.6551, coinciding with the significant level at 0.6550. If this support is breached, the pair could face further downside pressure, potentially retesting the monthly low at 0.6524.

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