Australian Dollar could end its winning streak ahead of US CPI

• Australian Dollar halts its winning streak amid a muted US Dollar.
• Australia’s S&P/ASX 200 Index retreats from all-time highs as investors booked profits.
• China's CPI YoY and MoM increased by 0.7% and 1.0%, respectively, in February.
• US Nonfarm Payrolls rose by 275K in February, surpassing the expected 200K and 229K prior.

The Australian Dollar (AUD) snaps its three-day winning streak on Monday, amid a weaker US Dollar (USD). The benchmark S&P/ASX 200 Index witnessed a decline at the beginning of the week, retreating notably from all-time highs as investors booked profits. The drop was particularly pronounced in the materials and healthcare sectors. Additionally, Australian shares followed a decline in technology stocks on Wall Street on Friday, which has tempered the strength of the AUD/USD pair.

Australian Dollar experienced a 1.60% gain against the US Dollar last week, driven by increasing expectations that the US Federal Reserve (Fed) will initiate interest rate cuts earlier than other major central banks. However, the Australian economy expanded less than anticipated in the fourth quarter, and the Trade Balance surplus fell short of expectations. These economic indicators highlight the argument for the Reserve Bank of Australia (RBA) to potentially consider rate cuts in the near future.

The US Dollar Index (DXY) maintains its position as traders adopt a cautious stance ahead of US Consumer Price Index (CPI) data for February, scheduled for Tuesday. Investors will closely monitor a panel discussion at the AFR Business Summit in Sydney on Tuesday, where Sarah Hunter, Assistant Governor (Economics) at the Reserve Bank of Australia, may provide insights on domestic inflation trends. Additionally, attention will be on the release of the Australian Westpac Consumer Confidence for March.

Daily Digest Market Movers: Australian Dollar depreciates on weaker equity market

• Australian Trade Balance (MoM) showed that the surplus increased to 11,027M in February, from 10,743M prior. The market expectation was an increase to 11,500M.
• Australian Gross Domestic Product (GDP) grew by 0.2% QoQ in the fourth quarter of 2023, slightly below market expectations of no change at 0.3%. GDP (YoY) expanded by 1.5%, surpassing the expected 1.4%, but falling short of the previous growth of 2.1%.
• Australia's Treasurer, Jim Chalmers, has announced that the government will abolish nearly 500 import tariffs on a wide range of goods starting from July 1, 2024. This initiative aims to reduce compliance costs for businesses. By removing these tariffs, approximately A$8.5 billion worth of annual trade will be streamlined, leading to savings of over A$30 million in compliance costs for businesses each year.
• In February, China's Consumer Price Index (CPI) increased by 0.7% year-over-year, rebounding from a 0.8% decline in January and surpassing market expectations of a 0.3% rise. CPI inflation (MoM) rose by 1.0%, up from a 0.3% increase seen in January and exceeding the market consensus of 0.7%.
• Chinese Producer Price Index (PPI) dropped by 2.7% YoY in February, compared to a 2.5% decline in January. This data came in weaker than market expectations, which anticipated a 2.5% decline.
• Federal Reserve (Fed) Chair Jerome Powell, in his s testimony before the US Congress last week, reaffirmed the central bank's position. Powell hinted at potential cuts in borrowing costs sometime this year. However, he emphasized that such actions would hinge on the inflation trajectory aligning with the Fed's target of 2%.
• Cleveland Fed President Loretta Mester addressed the Virtual European Economics and Financial Center, expressing concerns about the potential persistence of inflation throughout the year. She indicated that if the economy aligns with forecasts, there could be a likelihood of rate cuts later in the year.
• According to the CME FedWatch Tool, there has been a slight decrease in the probability of a rate cut in March and May, with chances at 3.0% and 24.5%, respectively. However, the likelihood of a 25 basis points rate cut has increased to 57.2% for June.
• US Nonfarm Payrolls increased by 275K in February, surpassing January's figure of 229K and beating expectations of 200K.
• US Average Hourly Earnings (YoY) grew by 4.3%, falling slightly below both February’s estimated and previous reading of 4.4%. On a monthly basis, there was an increase of 0.1%, which was lower than the anticipated 0.3% and the previous month's 0.5%.
• US Initial Jobless Claims were unchanged at 217K for the week ending on March 1, against the expected 215K.
• US Nonfarm Productivity remained consistent at the growth of 3.2% in the fourth quarter of 2023, exceeding the market expectation of 3.1%.
• February’s US ADP Employment Change came in at 140K against the expected 150K, increasing from 111K prior.

Technical Analysis: Australian Dollar hovers around 0.6620 followed by the previous week’s high

The Australian Dollar traded around 0.6620 on Monday. Key resistance appears at the major level of 0.6650, followed by the previous week’s high of 0.6667. A break above this level could support the pair to test the psychological barrier of 0.6700 level. On the downside, the immediate support appears at the 23.6% Fibonacci retracement level of 0.6614 followed by the psychological level of 0.6600. A break below the latter could push the AUD/USD pair to navigate the region around the 38.2% Fibonacci retracement level of 0.6581, aligned with the nine-day Exponential Moving Average (EMA) at 0.6574.

AUD/USD: Daily Chart