Australian Dollar retraces recent gains ahead of US inflation data

• Australian Dollar trades lower while the US Dollar looks to recover losses.
• Australia’s consumer sentiment declined by 2.6% in November, compared to the previous growth of 2.9%.
• Greenback could gain ground due to the recovery in US bond yields.

The Australian Dollar (AUD) trades lower on Tuesday while the US Dollar (USD) attempts to recover recent losses on the back of a recovery in US Treasury yields.

Australia’s Westpac Consumer Confidence revealed on Tuesday that consumer sentiment fell substantially in November, which could undermine the Aussie Dollar (AUD). Additionally, the AUD was under pressure after the Reserve Bank of Australia (RBA) struck a dovish chord in its last meeting.

RBA painted a challenging economic picture in its Monetary Policy Statement (MPS) last Friday, pointing to stubborn inflation and a sluggish Australian economy. The RBA has its sights set on realigning inflation with its target.

AUD could have cheered the hawkish statement from the RBA Assistant Governor (Economic) Marion Kohler. Kohler stated that the decline in inflation is expected to be slower than initially anticipated. This is attributed to the persistent high level of domestic demand and robust pressures from labor and other costs. Kohler emphasized the need for a tighter policy to address the challenges posed by elevated inflation.

The US Dollar Index (DXY) struggles to snap a two-day losing streak ahead of the inflation data from the United States (US) set to be released on Tuesday. Projections suggest that the Consumer Price Index (CPI) will rise in October at a slowing pace. The forecast for the core annual rate remains steady. If the data aligns with expectations, it could solidify the market's belief that the Federal Reserve (Fed) has concluded its interest rate hikes.

Daily Digest Market Movers: Australian Dollar maintains its position after rebounding from the previous week's low

• Australia’s Westpac Consumer Confidence declined by 2.6% in November, swinging from the previous growth of 2.9%.
• RBA highlighted the challenges stemming from persistent inflationary pressures and a sluggish domestic economy in its Monetary Policy Statement (MPS) last Friday.
• RBA board acknowledges the financial struggles of many households. Budgets are indeed feeling the squeeze. In a twist of economic dynamics, the central bank painted a mixed picture by raising its forecasts for both inflation and GDP growth.
• RBA increased the Official Cash Rate (OCR) from 4.10% to a 12-year high of 4.35%, responding to the latest Monthly Consumer Price Index (YoY) for September, which indicated a notable increase of 5.6% compared to the expected 5.4% growth.
• Australia’s TD Securities Inflation (YoY) eased at 5.1% in September from 5.7% prior.
• Economists at the National Australia Bank (NAB) anticipate another 25 basis points hike in February following the Q4 inflation data. Additionally, NAB believes rate cuts will unlikely commence until November 2024.
• The upcoming US-Sino Presidential meeting is on the horizon, and US President Joe Biden aims to rebuild military-to-military connections with China. The much-anticipated face-to-face between Biden and Chinese President Xi Jinping is scheduled for Wednesday during the Asia-Pacific Economic Cooperation summit in San Francisco., marking their first in-person meeting in a year.
• China's Consumer Price Index (CPI) witnessed an annual decline of 0.2% in October, compared to the expected 0.1% decrease. The monthly CPI dropped by 0.1%, contrasting with the earlier 0.2% growth. A weaker economic scenario in China casts a shadow over the Aussie Dollar (AUD), given Australia's heavy reliance on its largest trading partner.
• Federal Reserve (Fed) Chair Jerome Powell surprised in his speech on Thursday, taking a more hawkish stance than anticipated. Powell expressed concerns that the current policies might not be restrictive enough to reel inflation to the coveted 2.0% target.
• US Monthly Budget Statement reported a deficit of $67B in October, compared to the expected deficit of $65B.
• US preliminary US Michigan Consumer Sentiment data for November showed a dip in the mood among consumers. It fell to 60.4 from 63.8 in the previous month.

Technical Analysis: Australian Dollar remains above 0.6350 followed by the barrier at the 14-day EMA

The Australian Dollar trades higher near 0.6380 on Tuesday, with the 14-day Exponential Moving Average (EMA) at 0.6389 as the initial resistance. A significant barrier is also present at the psychological level of 0.6400. If there's a convincing breakthrough above this level, it may pave the way for the AUD/USD pair to explore the region around the 23.6% Fibonacci retracement at 0.6417. On the downside, the major support level at 0.6350 comes into play, followed by the three-week low at 0.6314.

AUD/USD: Daily Chart