The Australian dollar has posted small losses on Monday. Currently, AUD/USD is trading at 0.7628, down 0.13% on the day. AUD/USD enjoyed its best week since October, with gains of just under 1 percent.
Australian numbers were mixed at the start of the week. The Melbourne Institute Inflation Gauge, which tracks inflation on a monthly basis, slowed to 0.2% in January, falling to a 3-month low. There was better news from Commodity Prices, which jumped 19.7%, its highest level since August 2017.
China released its PMI reports, which pointed to slower activity in January. The Manufacturing PMI fell to 51.3, down from 51.9. The Non-Manufacturing PMI showed a deeper slide, falling from 55.7 to 52.4, which was a 10-month low. The PMIs remain in expansionary territory, with readings above the neutral 50 level, but a resurgence in Covid-19 in China has led to slower expansion for the Asian giant. That could mean trouble for the Australian dollar, as China is Australia’s largest trading partner.
RBA expected to hold interest rates
The Australian economy has bounced back nicely from the Covid crisis, as domestic economic activity has been solid. The labor market is recovering, consumer spending is rising and the housing market has rebounded. So what’s wrong with this picture? The RBA is finding itself having to play catchup with all this good economic news, as the central bank is wrestling as to whether it needs to taper its QE program. The RBA introduced QE for the first time ever just three months ago, when it implemented a 6-mth, AUD100 billion scheme. One of the goals of QE was to contain the exchange rate, but the sharp depreciation in the US dollar has seen AUD/USD soar by 34% since March.
The RBA will need to tread carefully in a global environment of extensive QE. Just last week, the Federal Reserve poured call water on speculation that it might taper QE late in the year. If the RBA were to taper before its peers, it could have the unwanted result of further boosting the strong Australian dollar.
AUD/USD Technical
- 0.7740 is the first line of resistance, following by resistance at 0.7842
- There is support at 0.7568. Below, we have support at 0.7494
- AUD/USD is putting downward pressure on the 50-day moving average (MA). A daily close below this line is a bearish technical signal
