25/11/24

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The Australian Dollar has shown resilience, appreciating as the US Dollar retreats after reaching a two-year peak of 108.07. The S&P/ASX 200 Index has also demonstrated strong performance, climbing to new all-time highs above 8,450, reflecting the upward momentum seen on Wall Street.

The recent strengthening of the Australian Dollar can be linked in part to optimism in the bond market, fueled by the announcement of Scott Bessent as the new US Treasury Secretary. Bessent, an experienced figure in financial circles, is perceived to bring a fiscally conservative approach that may influence market dynamics positively.

Moreover, a surge in foreign investment has likely contributed to the AUD’s rise, with the Australian equity market attracting attention due to its recent highs. The continuing positive sentiment across global markets, particularly following the Dow Jones’ record close, has further bolstered the dollar.

Support for the AUD has also come from a hawkish outlook by the Reserve Bank of Australia (RBA) concerning interest rates. The upcoming Monthly Consumer Price Index (CPI) for October will be pivotal in shaping market expectations regarding domestic monetary policy. The RBA has indicated that interest rates will remain restrictive until inflation trends sustainably towards its target, although it remains flexible and data-driven about potential future adjustments.

In the US, the Dollar Index has receded to around 107.00, following its recent peak. Although the potential for further declines exists, solid economic indicators, such as the recent Purchasing Managers’ Index (PMI) data, support the US economy’s resilience and lessen the likelihood of aggressive rate cuts from the Federal Reserve. Current market sentiment suggests a decreased probability of immediate cuts, reflecting a nuanced approach to economic conditions influenced by robust labor market data.

In Australia, major banks anticipate the RBA may cut rates sooner than previously expected, with forecasts now suggesting a possible cut as early as May, depending on economic developments. Meanwhile, the recent PMI data indicates mixed results, with the Australian composite output showing a slight contraction, prompting cautious evaluations of future economic performance.

As of Monday, the AUD/USD pair is trading near 0.6540, signaling potential short-term momentum. However, it remains within a broader descending channel. Market participants will be closely watching key levels of support and resistance as they navigate this complex landscape of economic indicators and central bank strategies.