Australian Dollar remains stronger after the release of employment data

• The Australian Dollar appreciates following the domestic mixed labor market.

• Australia’s Employment Change rose by 35,600 in November, exceeding the previous 12,100 and the expected 25,000 readings.

• Traders still expect the Fed to proceed with a quarter-point rate cut in December following the latest US CPI report.

The Australian Dollar (AUD) halts its two days of losses against the US Dollar (USD) on Thursday. The AUD remains stronger after the release of domestic mixed employment data. The seasonally adjusted Employment Change increased by 35,600, bringing the total number of employed people to 14,535,500 in November. This exceeded the previous reading of 12,100 and the expected figure of 25,000. Meanwhile, the Unemployment Rate fell to 3.9%, the lowest since March, lower than market estimates of 4.2%.

The AUD/USD pair faced challenges due to the broadly stronger US dollar (USD) following the release of the US inflation report on Wednesday. US Consumer Price Index (CPI) rose to 2.7% year-over-year in November from 2.6% in October. The headline CPI reported a 0.3% reading MoM, in line with the market consensus. Meanwhile, the core CPI, excluding volatile food and energy prices, climbed 3.3% YoY, while the core CPI increased 0.3% MoM in November, as expected.

However, the latest US inflation report does not seem enough to keep the Federal Reserve (Fed) from cutting rates at its December meeting next week. Traders are now pricing in nearly a 99% chance of Fed rate reductions by 25 basis points on December 18, according to the CME FedWatch Tool.

Australian Dollar appreciates despite China’s anticipated sharp hike in US tariffs

The AUD received downward pressure on Wednesday as China, a key trading partner of Australia, saw its top leaders and policymakers consider letting the Chinese Yuan fall in response to an expected sharp hike in US tariffs, per Reuters.

On Tuesday, China President Xi Jinping stated, "China has full confidence in achieving this year's economic target." Xi emphasized that China will continue to serve as the largest engine of global economic growth and asserted that there would be no winners in tariff wars, trade wars, or tech wars.

China's Trade Balance (CNY) increased to CNY 692.8 billion in November, up from CNY 679.1 billion in the previous month. Exports grew by 1.5% year-over-year in November, compared to the 11.2% rise in October. Meanwhile, imports increased by 1.2% YoY, recovering from the 3.7% decline recorded earlier.

The Reserve Bank of Australia decided to keep the Official Cash Rate (OCR) unchanged at 4.35% in its final policy meeting in December. RBA Governor Michele Bullock highlighted that while upside inflation risks have eased, they persist and require ongoing vigilance. The RBA will closely monitor all economic data, including employment figures, to guide future policy decisions.

Australia's economy grew at its slowest annual pace since the pandemic in the third quarter. The OZ nation’s Gross Domestic Product (GDP) rose 0.3% in the September quarter, missing market forecasts of 0.4%. Weaker-than-expected GDP growth made markets almost fully price in a rate cut next April at 96% (from 73% before), according to Refinitive interest rate probabilities data.

The Australian Dollar received support from improved sentiment and stimulus expectations from China. China’s leaders announced plans for proactive fiscal and looser monetary policies to accelerate domestic consumption in 2024. Weak Chinese CPI data (-0.6% in November, worse than expected) highlights challenges in the recovery but bolsters stimulus speculation.

Australian Dollar tests nine-day EMA after breaking above 0.6400

AUD/USD trades near 0.6410 on Thursday. The technical analysis of a daily chart indicates a strengthening bearish bias as the pair is confined within a descending channel pattern. Additionally, the 14-day Relative Strength Index (RSI) remains below the 50 level, indicating sustained negative momentum.

On the downside, the yearly low of 0.6348, last seen on August 5, served as immediate support in the previous session. However, a break below this level could strengthen the bearish bias and push the AUD/USD pair toward the descending channel’s lower boundary around the 0.6200 level.

The AUD/USD pair faces an initial barrier around the nine-day Exponential Moving Average (EMA) at 0.6422, followed by the descending channel’s upper boundary at 0.6440 level. A decisive breakout above this channel could pave the way for a potential rally toward the seven-week high of 0.6687.

AUD/USD: Daily Chart