Anna 
On Tuesday, the Australian Dollar (AUD) continued its upward trajectory against the US Dollar (USD) in the backdrop of a relatively stable USD. The AUD/USD pair found support as US bond yields declined in the previous session, attributed to a healthier US balance sheet. The sustained decrease in yields since October 2023 has contributed to the stability of the US Treasury, with stronger economic growth leading to improved tax receipts. Notably, the US Treasury Department’s announcement of plans to borrow $760 billion in the first quarter, lower than the previous estimate of $816 billion, also influenced the market.
Despite a disappointing seasonally adjusted Retail Sales (MoM) report for December, which indicated a 2.7% decline against an expected fall of 0.9%, the AUD displayed resilience. This unexpected strength could be attributed to positive sentiments stemming from news of additional stimulus measures in China, providing support to the AUD/USD pair. Investors are now eyeing the upcoming Australian Consumer Price Index (CPI) data on Wednesday, with expectations of a 0.8% decline in the fourth quarter from the previous 1.2%.
The US Dollar Index (DXY) demonstrated stability after Monday’s losses, driven by an improved risk-off mood. The potential for heightened risk aversion is on the horizon, as the administration of US President Joe Biden is expected to authorize military strikes in response to a recent drone attack on a US outpost in Jordan.
Market participants are eagerly awaiting the Federal Open Market Committee (FOMC) statement scheduled for Wednesday, January 31. While the consensus expectation is for the Fed Funds rate to remain unchanged at 5.25-5.50%, the prevailing market bias toward a potential rate cut in March may impact the USD. In the lead-up to the FOMC statement, the releases of the Housing Price Index and Consumer Confidence figures on Tuesday will provide additional insights into the market sentiment and economic landscape.
