Australian Dollar strengthens on positive Aussie Producer Price Index data.

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• Australian Dollar strengthens on positive Aussie Producer Price Index data.
• Australia’s PPI (YoY) grew by 4.1% in Q4, surpassing the previous growth of 3.8%.
• Former RBA board member Warwick McKibbin suggested cash rate may remain around 4.5%. for some time.
• An expected decline in US Nonfarm Payrolls could further weaken the US Dollar.

The Australian Dollar (AUD) continues its upward momentum on Friday, recovering from a three-month low reached at 0.6508 on Thursday. The US Dollar (USD) faced downward pressure following mixed economic data from the United States (US). Moreover, the Australian Dollar (AUD) received support from improved Producer Price Index (PPI) data. Consequently, these factors collectively provide upward support for the AUD/USD pair.

Australian Bureau of Statistics has released the PPI (YoY) for the fourth quarter, indicating an improvement with a growth rate of 4.1%, surpassing the previous growth of 3.8%. Furthermore, an enhanced Australian money market is contributing support to strengthen the Aussie Dollar. In a Reuters Poll, analysts unanimously expect the Reserve Bank of Australia (RBA) to keep the interest rate steady at 4.35% in its February policy meeting.

Former RBA board member Warwick McKibbin suggests that the Australian cash rate may remain around 4.5% for an extended period. However, the Australian Dollar has encountered challenges, with bond traders heightening their expectations of early interest rate cuts by the Reserve Bank of Australia after an unexpectedly weak quarterly inflation report. Future markets are fully pricing in two quarter-point reductions in 2024, with the first adjustment anticipated in August.

The US Dollar Index (DXY) experienced losses in the wake of mixed US economic data released on Thursday, compounded by subdued US Treasury yields. Initial Jobless Claims for the week ending on January 26 rose to 224K, surpassing the previous increase of 215K and the expected figure of 212K. However, the ISM Manufacturing PMI showed improvement, rising to 49.1 from the prior reading of 47.1, surpassing the anticipated figure of 47.0 in January. On Friday, additional labor data is scheduled for release, including US Average Hourly Earnings and Nonfarm Payrolls (NFP).

The Australian Dollar trades around 0.6580 on Friday, below the immediate resistance zone around 23.6% Fibonacci retracement at 0.6594 aligned with the psychological level at 0.6600. A successful breakthrough above the resistance zone may lead the AUD/USD pair toward testing the 21-day Exponential Moving Average (EMA) at 0.6614, followed by a crucial resistance level at 0.6650. On the downside, the AUD/USD pair could find the key support at a major level of 0.6550. A breach of this support might prompt the pair to retest the weekly low at 0.6508.

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