## AUD/USD Maintains Rebound Momentum Supported by Technicals

The AUD/USD traded around 0.6720 during this Friday’s session, marking a correction phase after nearly 15 months of highs. Daily technicals show the currency pair remains in an upward channel, indicating that the bulls still hold control. The 14-day Relative Strength Index (RSI) stands at 64.42, suggesting that buying momentum is still mildly expanding.

From a technical perspective, key resistance above AUD/USD is at 0.6766 (the high since October), with a further breakout potentially reaching the channel’s upper boundary around 0.6840. Initial support is at the lower boundary of the channel at 0.6720; a break below this level would see the 9-day Exponential Moving Average (EMA) at 0.6706 as the second line of defense. If support fails entirely, the bearish target shifts to the 0.6626 area, where the 50-day EMA resides.

## Australian Economic Data Pressures Currency Gains

The Australian Bureau of Statistics (ABS) released November trade data this Thursday, showing the goods trade surplus narrowed to AUD 2.936 billion, a significant decline from the previous month’s AUD 4.353 billion (revised to AUD 4.385 billion). Exports decreased by 2.9% month-over-month, compared to a 2.8% increase in October (revised from 3.4%). Imports rose by 0.2%, higher than October’s revised 2.4% growth.

The November Consumer Price Index (CPI) rose 3.4% year-over-year, below market expectations of 3.7%, but still above the Reserve Bank of Australia’s (RBA) target range of 2-3%. Compared to October’s 3.8%, this is the lowest since August, with housing costs slowing to their slowest pace in the past three months. Monthly CPI was flat, with no change from the previous month. The RBA’s adjusted core CPI increased by 0.3% month-over-month, with a 3.2% annual increase.

Notably, seasonally adjusted building permits surged 15.2% month-over-month, reaching a near four-year high with 18,406 applications in November. Year-over-year, permits increased by 20.2%, reversing October’s revised 1.1% decline.

## Uncertainty Remains in Federal Reserve Policy Outlook

The US Dollar Index (DXY) held steady around 98.70 on Thursday, measuring the dollar’s value against six major currencies. Traders are closely watching the initial jobless claims data released on Friday, with the next key indicator being the Non-Farm Payrolls (NFP) report, expected to show 55,000 new jobs added in December, a decline from 64,000 in November.

The Institute for Supply Management (ISM) released its December US Services PMI on Wednesday, rising to 54.4 from 52.6 in November, surpassing the market forecast of 52.3.

Federal Reserve officials remain divided on policy stance. St. Louis Fed President James Bullard said on Tuesday that the Fed needs to implement a more aggressive rate cut this year to support economic growth. Minneapolis Fed President Kashkari warned of a risk of a “sharp rise” in unemployment. Richmond Fed President Barkin, a non-voting member, on Tuesday emphasized that rate adjustments should be “fine-tuned” based on new data, highlighting the trade-offs the Fed faces between employment and inflation goals.

According to the CME FedWatch tool, market pricing indicates an approximately 88.9% probability that the Fed will hold rates steady during the January 27-28 meeting. The market also anticipates two rate cuts by 2026. Additionally, markets are digesting expectations that President Trump may nominate a new Fed Chair after Jerome Powell’s term ends in May, which could increase the likelihood of rate cuts.

## Diverging China Economic Growth Highlights Trade Chain Risks

Rating agency RatingDog released its December China Services PMI on Monday, which fell slightly to 52.0 from 52.1 in November. Last week, the same agency reported that the December Manufacturing PMI rose to 50.1 from 49.9 in November. Given that China and Australia are close trading partners, any shifts in China’s economic trajectory could impact the AUD exchange rate.

## RBA Tightening Cycle May Not Be Truly Over

The Australian Financial Review (AFR) reported that the RBA may not have completed its current tightening cycle. Market surveys suggest inflation expectations will remain elevated next year, fueling expectations of at least two more rate hikes, contrasting with discussions of potential rate cuts. This policy uncertainty could be a key factor limiting further upside in the AUD in the short term.