The week was quite informative for the Australian dollar. GDP rose 0.2% in the fourth quarter, domestic demand remains weak and is largely supported by the public sector. Household consumption grew a measly 0.1% over 2023, the slowest annual growth in almost 40 years if you exclude the Covid period and the 2008 crisis.
NAB Bank believes that the Reserve Bank of Australia will not take any action until November, which provides the AUD with a small advantage if the Federal Reserve decides to start lowering rates in June, as the market predicts.
The current account balance, which represents Australia's net flow of current transactions, increased to a surplus of $11.8 billion in the December quarter 2023, significantly exceeding both the forecast of 5.6 billion and the third-quarter figure of 1.3 billion. The sharp increase in exports, driven largely by the rise in iron ore prices, and the decrease in imports contributed to this, which supports AUD growth. On Thursday, the trade balance for February will be published, with an expected increase in the surplus, which could also support the Australian dollar.
However, we also have negative news. The commodity price index is expected to decrease by approximately 3.3% in the first quarter. The main reason for the decline is the reduced demand for liquefied natural gas (LNG) due to a mild winter. A slowdown in global economic growth is also expected due to restrictive monetary policies in developed economies and challenges in China's economy, projected at 2.8%. This will have a negative impact on a broad range of commodities and, consequently, on the currencies of export-oriented countries.
The net short AUD position decreased by 181 million reaching -5.181 million over the reporting week. The bearish bias remains intact. The price is trying to start a bullish reversal but remains below the long-term average.
Considering the noticeable decrease in risk appetite, we don't necessarily see the pair starting a stable corrective rise anytime soon. The nearest resistance is at 0.6537, and there may be either a sideways movement or a bearish reversal around this level. Much will depend on the nonfarm payrolls data on Friday: if the report is generally positive and supports risk appetite, the pair may correct higher, and move towards the resistance at 0.6598. However, if the trend is unfavorable, it is more likely for the pair to form a local peak around 0.6537 and start a bearish reversal towards 0.6444. At the moment, the latter scenario appears more probable.
