Anna 
The Australian Dollar (AUD) is experiencing a downtrend on Wednesday following weaker-than-expected inflation data for December and heightened risk-off sentiment. Here are the key factors influencing the AUD:
Slower Inflation Data: Australia’s Monthly Consumer Price Index (CPI) for December showed a year-on-year increase of 3.4%, down from the previous month’s 4.3%. The RBA Trimmed Mean CPI (YoY) for Q4 was 4.2%, lower than the anticipated 4.3%. The CPI (QoQ) figure came in at 0.6%, softer than the expected 0.8%. Traders are now pricing in the possibility of as many as two rate cuts from the Reserve Bank of Australia (RBA) throughout the year.
RBA Policy Meeting: The RBA’s policy meeting is scheduled for February 5 and 6, and it is widely expected that the interest rate decision will be to keep rates unchanged. The weaker inflation figures may put pressure on the RBA to consider rate cuts, and traders will closely monitor the central bank’s statement for any hints regarding future monetary policy.
China’s Economic Data: The China Federation of Logistics and Purchasing (CFLP) released the Non-Manufacturing Purchasing Managers’ Index (PMI) for January, indicating an improvement in the performance of China’s service sector. Both the Non-Manufacturing PMI and Manufacturing PMI surpassed expectations, potentially limiting the losses of the Aussie Dollar, given the close trade ties between Australia and China.
Global Risk-Off Sentiment: The prevailing risk-off sentiment is adding downward pressure on the AUD/USD pair, with traders exercising caution amid heightened tensions in the Middle East. The risk aversion sentiment could intensify further if the US responds militarily to the recent drone attack on a US outpost in Jordan.
US Dollar Index (DXY): The US Dollar Index (DXY) faces challenges due to subdued US Treasury yields. Investors are awaiting signals from the Federal Reserve’s (Fed) FOMC meeting, with the expectation that interest rates will remain unchanged. The risk aversion sentiment could impact the AUD/USD pair, and traders will also focus on US economic data, including ADP Employment Change and Nonfarm Payrolls.
As the market digests economic data, central bank decisions, and geopolitical developments, the AUD/USD pair is likely to experience volatility in the near term. Traders will closely monitor key levels and events for potential market opportunities.
