Australian Dollar appreciates despite a disappointing Q4 Private Capital Expenditure

• The Australian Dollar holds gains after the release of a weaker-than-expected Private Capital Expenditure on Thursday.
• Australia’s Private Capital Expenditure unexpectedly contracted by 0.2% QoQ in Q4 2024, falling short of market expectations for 0.8% growth.
• The US Dollar continues to strengthen as traders evaluate the economy’s performance and the outlook on tariffs.

The Australian Dollar (AUD) holds gains against the US Dollar (USD) on Wednesday. The AUD/USD pair gains ground despite the release of disappointing Australia’s Private Capital Expenditure, which unexpectedly shrank by 0.2% quarter-on-quarter in the fourth quarter of 2024, missing market expectations of 0.8% growth and after an upwardly revised 1.6% expansion in the previous quarter.

Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser said he expects more positive news on inflation but emphasized the importance of seeing this progress materialize first. He noted that the tightness in Australia’s labor market remains a challenge for controlling inflation.

The AUD also faced challenges on Wednesday following Australia’s monthly Consumer Price Index (CPI), which rose by 2.5% year-over-year in January, compared to a 2.5% increase seen in December. The market forecast was for 2.6% growth in the reported period.

The AUD/USD pair faces challenges due to rising risk sentiment as US President Donald Trump said late Monday that sweeping US tariffs on imports from Canada and Mexico “will go forward” when a month-long delay on their implementation expires next week. Moreover, the Trump administration is aiming to tighten chip export controls on China, Australia’s close trading partner.

However, the downside of the AUD/USD pair could be limited as the People’s Bank of China (PBOC) injected CNY300 billion on Tuesday via the one-year Medium-term Lending Facility (MLF), maintaining the rate at 2%. Additionally, the PBOC injected CNY318.5 billion through seven-day reverse repos at 1.50%, consistent with the prior rate.

Australian Dollar could depreciate due to increased risk aversion

• The US Dollar Index (DXY), which measures the USD against six major currencies, gains ground as traders assess the strength of the economy and tariff outlook. The DXY extends its gains to near 106.50 at the time of writing.
• Federal Reserve Bank of Atlanta President Raphael Bostic said late Wednesday that the Fed should hold interest rates where they are, at a level that continues to put downward pressure on inflation, per Bloomberg.
• The White House said late Wednesday that US President Donald Trump issued an executive order aimed at implementing the Department of Government Efficiency's (DOGE) cost-cutting drive, per Reuters. The executive order requires agencies to justify spending, limit travel, and identify surplus federal properties that can be sold.
• President Trump signed a memorandum on Friday instructing the Committee on Foreign Investment in the United States (CFIUS) to limit Chinese investments in strategic sectors. Reuters cited a White House official saying that the national security memorandum seeks to encourage foreign investment while safeguarding US national security interests from potential threats posed by foreign adversaries like China.
• The Reserve Bank of Australia (RBA) lowered its Official Cash Rate (OCR) by 25 basis points to 4.10% last week—the first rate cut in four years. Reserve Bank of Australia (RBA) Governor Michele Bullock acknowledged the impact of high interest rates but cautioned that it was too soon to declare victory over inflation. She also emphasized the labor market's strength and clarified that future rate cuts are not guaranteed, despite market expectations.

Australian Dollar tests 0.6300 support as a bearish bias emerges

The AUD/USD pair hovers around 0.6300 on Thursday. Analysis of the daily chart indicates that the pair stays below the nine- and 14-day Exponential Moving Averages (EMAs), signaling weakening short-term price momentum. Moreover, the 14-day Relative Strength Index (RSI) remains below 50, reinforcing the prevailing bearish outlook.

The AUD/USD pair tests immediate support at the psychological level of 0.6300. A break below this threshold could push the pair toward the 0.6087 region, its lowest level since April 2020, recorded on February 3.

On the upside, the AUD/USD pair may face immediate resistance at the 14-day EMA of 0.6323, followed by the nine-day EMA at 0.6329. A decisive break above these levels could strengthen short-term price momentum, paving the way for the pair to challenge the two-month high of 0.6408, reached on February 21.

AUD/USD: Daily Chart