Australian Dollar (AUD) Analysis

• Asian indices ease at the start of the European session as markets eye further accommodation from China
• Aussie dollar posts a lower start to the week (AUD/USD) ahead of the monthly inflation indicator and US PCE

Asian Indices Ease to Start the Week but AUS200 Remains Near Peak

The MSCI Asia Pacific Index eased at the start of the week after US markets closed slightly in the red on Friday. However, the move lower did not affect what was a really positive week for US stocks, reaching a new all-time high on the S&P 500 with overall sentiment helping the Nikkei 225 reach the same feat.

At the start of this week Chinese indices headed lower after a strong bullish run, brought about by large scale stock and ETF buying from state-linked investment companies. Markets appear to be looking for further accommodation from the state as the Chinese economy continues to struggle with credit growth, domestic consumption, disinflation, and the beleaguered real estate sector. Last week, the 5-year loan prime rate was adjusted lower to help lower mortgage financing costs and help stimulate appetite.

Aussie Dollar Posts a Lower Start to the Week Ahead of Inflation Data

The Australian dollar also heads lower at the start of the week after failing to break above 0.6580 at the end of last week. The pair attempted to trade above resistance on Thursday but ultimately withdrew towards the end of the trading session. The 0.6580 level has come into play on numerous occasions both as support and resistance and remains a key level, often separating the bullish and bearish moves.

AUD/USD Daily Chart

Source: Tradingview, Prepared by Richard Snow

In addition, price has moved away from the 200 day simple moving average (SMA) with the next zone of support coming into play around 0.6520 followed by 0.6460. Monthly Australian inflation data is due in the early hours of Wednesday morning where it is forecast we'll see a slight rise in the measure from 3.4% to 3.5% as price pressures in January appear to remain robust. Inflation has been trending lower since the Reserve Bank of Australia decided to hike interest rates in November 2023. The decision to increase rates again was made in response to consecutive readings of higher general prices.

This week the US PCE data stands out above the rest and will be complemented by the second estimate of US GDP for Q4, although, the second estimate tends not to provide as much impact as the advance figure unless there is a notable revision.

AUD/JPY also appears to have discovered a period of resistance after the Thursday and Friday daily candles presented higher upper wicks around a prior level of resistance. This typically suggests a rejection of higher prices and a waning of bullish momentum. The uptrend is still very much intact with price action rising above the 50 and 200 day simple moving average. Resistance at 98.70 remains in play for the pair.

AUD/JPY Daily Chart

Source: Tradingview, prepared by Richard Snow

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