Australian Dollar appreciates despite weaker Building Permits for November 2024

• The Australian Dollar remains strong following the Building Permits data release on Tuesday.
• Australia's seasonally adjusted estimate for total dwellings approved decreased by 3.6% month-on-month to 14,998 units in November 2024.
• The US Dollar Index edges closer to 108.50 after two days of losses.

The Australian Dollar (AUD) gains ground for the fourth consecutive session against the US Dollar (USD) on Tuesday. The AUD/USD remains stronger despite weaker-than-expected Building Permits for November.

The permits for new construction projects in Australia dropped by 3.6% month-on-month to 14,998 units in November 2024, falling short of market expectations for a 1.0% decline. This downturn followed an upwardly revised 5.2% increase in October, marking the first decrease in three months.

Australia's Monthly Consumer Price Index (CPI) for November, scheduled for Wednesday, will be in the spotlight. If the reading comes in below market expectations, this could trigger the chance of a rate cut by the Reserve Bank of Australia (RBA) at its February meeting, weighing on the AUD.

Australian Dollar rises despite a hawkish shift in Fed's policy outlook

• The US Dollar Index (DXY), which measures the US Dollar's (USD) performance against six major currencies, edges higher to near 108.50 at the time of writing.
• The US ISM Manufacturing PMI improved to 49.3 in December, from 48.4 in November. This reading came in better than the market expectation of 48.4.
• Richmond Fed President Thomas Barkin highlighted on Friday that the benchmark policy rate should remain restrictive until there is greater confidence that inflation is on track to return to the 2% target.
• Fed Governor Adriana Kugler and San Francisco Fed President Mary Daly underscored the challenging balancing act facing US central bankers as they aim to slow the pace of monetary easing this year.
• Traders are cautious regarding President-elect Trump's economic policies, fearing that tariffs could increase the cost of living. These concerns were compounded by the Federal Open Market Committee's (FOMC) recent projections, which indicated fewer rate cuts in 2025, reflecting caution amid persistent inflationary pressures.
• The Judo Bank Australia Composite PMI for December 2024 was revised upward to 50.2 from the previous reading of 49.9, indicating a third consecutive month of marginal growth in private sector output. This expansion was driven by the services sector, as manufacturing output continued to contract. Meanwhile, the Services PMI was revised higher to 50.8, up from 50.5 in November, marking the eleventh consecutive month of growth in the services sector.
• The Caixin China Services Purchasing Managers' Index (PMI) rose to 52.2 in December 2024, up from 51.5 in November, exceeding market expectations of 51.7. This marks the fastest growth in the services sector since May. Meanwhile, the Caixin Manufacturing PMI, released on Thursday, unexpectedly fell to 50.5 in December, down from 51.5 in November, missing market forecasts of 51.7.
• According to Reuters, the Shanghai Stock Exchange has committed to deepening the opening of capital markets during a meeting with foreign institutions. Solid fundamentals underpin China's economy and demonstrate resilience amid a complex global environment.
• The Financial Times reported on Friday that the People's Bank of China (PBoC) anticipates an interest rate cut at an appropriate time this year. Given their close trade relationship, fluctuations in China's economy often have a notable impact on Australian markets.

Australian Dollar rises to near descending channel's upper boundary

The AUD/USD pair trades near 0.6250 on Tuesday, maintaining a bearish outlook as it is confined within a descending channel on the daily chart. However, the 14-day Relative Strength Index (RSI) rises toward the 50 level, indicating a potential weakening of bearish momentum.

On the upside, the AUD/USD may test the upper boundary of the descending channel, around the psychological mark of 0.6280.

Regarding its support, the AUD/USD pair aligns with the 14-day Exponential Moving Average (EMA) at 0.6245, followed by the nine-day EMA at 0.6229. A further support region appears around the lower boundary of the descending channel, around 0.6000 level.

AUD/USD: Daily Chart