Anna 
In recent trading, the Australian dollar (AUD) retraced its intraday gains, countering the greenback’s endeavor to recover losses on Tuesday. However, the AUD/USD pair appears resilient, benefiting from an improved risk appetite, partly attributed to remarks from U.S. Federal Reserve (Fed) members speculating on potential interest rate cuts before the conclusion of 2024. Furthermore, positive economic data from Australia is contributing to the strength of the Australian dollar.
According to the Australian Bureau of Statistics, November saw a noteworthy seasonally adjusted retail sales surge of 2.0% month-on-month, surpassing expectations of 1.2% and rebounding from a prior 0.2% decline. Additionally, monthly building permits dipped to 1.6% from the previous 7.5%, contrasting expectations for a 2.0% decline.
Market participants eagerly anticipate the release of monthly consumer price index data on Wednesday, seeking additional insights into the trajectory of interest rates from the Reserve Bank of Australia (RBA). However, the RBA is not anticipated to implement interest rate cuts at its forthcoming February meeting.
The U.S. Dollar Index (DXY) confronts challenges amid diminishing U.S. Treasury yields. Furthermore, the dollar faces headwinds from more dovish commentary by Fed members, which has bolstered sentiment in risk markets.
Addressing the economic outlook for 2024 at the Atlanta Rotary Club on Monday, Atlanta Fed President Raphael W. Bostic acknowledged a greater-than-expected decline in inflation. He outlined expectations for two 25 basis point interest rate cuts by the end of 2024, expressing contentment with prevailing interest rate levels. Bostic underscored the necessity of allowing the Fed time to tighten policy to counteract inflation and highlighted the United States’ achievement of a 2% inflation rate, with the objective of maintaining this level.
Federal Reserve Bank President Michelle W. Bowman, speaking at the South Carolina Bankers Association’s 2024 Community Bankers Conference on Monday, emphasized the potential for further inflation decline with stable policy rates. Bowman asserted that the existing policy stance appears sufficiently restrictive, but conceded that a closer approach to the 2% inflation target might prompt a reduction in the Fed’s policy rate.
