Australian Dollar remains under pressure following the release of the RBA Meeting Minutes

• The Australian Dollar depreciates as the RBA may begin rate cuts in February.
• The RBA's Meeting Minutes suggested that the board had grown more confident about inflation; however, risks persisted.
• US Dollar appreciated as Fed policymakers signaled fewer rate cuts in 2025 due to a slowdown in the disinflation process.

The Australian Dollar (AUD) loses ground for the second successive day against the US Dollar (USD) on Tuesday following the release of the Reserve Bank of Australia's (RBA) Meeting Minutes for its December monetary policy. Trading activity is expected to be subdued before the Christmas holiday.

The RBA's Meeting Minutes indicated that the board had grown more confident about inflation since its previous meeting, though risks persisted. The board emphasized the need for monetary policy to remain "sufficiently restrictive" until there was greater certainty about inflation.

The RBA board also noted that if future data aligns with or falls below forecasts, it would bolster confidence in inflation and make it appropriate to start easing policy restrictions. However, stronger-than-expected data could require maintaining restrictive policy for a longer period.

Reserve Bank of Australia Governor Michele Bullock highlighted the continued strength of the labor market as a key reason the RBA has been slower than other nations to commence its monetary easing cycle.

Australian Dollar weakens as traders expect fewer Fed rate cuts next year

• The US Dollar rebounded following a sharp sell-off as Federal Reserve (Fed) policymakers signaled fewer interest rate cuts next year due to a slowdown in the disinflation process. However, soft US PCE data have tempered inflation concerns, presenting a mixed outlook for the economy.
• According to the CME FedWatch tool, markets now anticipate a nearly 93% probability that the Federal Reserve (Fed) will keep interest rates unchanged in January, maintaining the current range of 4.25%-4.50%.
• US Durable Goods Orders for November came in weaker than expected, with fresh orders declining by 1.1%, compared to the projected 0.4% drop. This follows an upwardly revised increase of 0.8% in October, up from the initially reported 0.2%.
• On Friday, Cleveland Fed President Beth Hammack said that she prefers to hold interest rates steady "until the Fed gets further evidence that inflation is resuming its path to its 2% objective," per Reuters.
• Chicago Fed President Austan Goolsbee stated in an interview with CNBC that uncertainty surrounding Trump's policies after taking office led him to revise his projection for 2025. While he had previously anticipated a 100-basis-point (bps) interest rate reduction, he now expects fewer cuts.
• US core PCE inflation year-over-year, the Fed's preferred inflation measure, rose steadily by 2.8%, slower than estimates of 2.9%. The monthly core inflation grew moderately by 0.1%, against forecasts of 0.2% and the prior release of 0.3%.

Australian Dollar remains below 0.6250, with RSI reflecting risks to the upward correction

AUD/USD trades near 0.6230 on Tuesday, with the daily chart signaling a persistent bearish bias as the pair remains within a descending channel pattern. The 14-day Relative Strength Index (RSI) dips below the 30-level, suggesting the potential near-term upward correction to dissipate.

On the downside, the AUD/USD pair may test the lower boundary of the descending channel near the 0.6110 support level.

To the upside, the AUD/USD pair faces an initial barrier at the nine-day Exponential Moving Average (EMA) of 0.6288, followed by the 14-day EMA at 0.6322. A more significant hurdle is the descending channel's upper boundary, around 0.6370. A decisive breakout above this channel could open the door for a rally toward the nine-week high of 0.6687.

AUD/USD: Daily Chart