Australian Dollar Under Pressure: Inflation Data Sparks Selloff

The ethereum price prediction 2040AUD/USD pair continues its bearish trajectory this Wednesday as December's inflation readings came in significantly below market expectations. Australia's Monthly CPI showed just 3.4% year-over-year growth, marking a substantial deceleration from November's 4.3% and missing the 3.7% consensus forecast. This cooling price environment has prompted traders to price in two potential rate cuts from the Reserve Bank of Australia in 2024.

Breaking Down the Inflation Metrics

Quarterly inflation data revealed even more pronounced softening:

• Trimmed Mean CPI (YoY): 4.2% vs prior 5.2%
• Quarterly CPI (QoQ): 0.6% vs expected 0.8%
• Monthly CPI (YoY): 3.4% vs previous 4.3%

While these figures remain above the RBA's 2-3% target band, they represent significant progress from the 8% peak witnessed earlier. Market participants now anticipate the central bank will maintain current rates at its February 5-6 meeting.

Chinese Economic Data Provides Some Support

January's PMI readings from China offered modest relief for the commodity-linked currency:

• Non-Manufacturing PMI: 50.7 (above 50.6 forecast)
• Manufacturing PMI: 49.2 (matching expectations)

As Australia's largest trading partner, China's economic resilience helps mitigate some AUD downside, though the overall risk-off environment persists amid Middle East tensions.

Fed Decision Looms Large

All eyes turn to the FOMC meeting where policymakers are expected to:

• Maintain rates at 5.25-5.50%
• Provide guidance on potential 2024 easing

Market pricing now shows just 43% odds of a March cut, down from 80% in December, with May seeing 53% probability for initial easing. This shifting timeline creates USD support that pressures AUD/USD.

Technical Perspective

The pair currently tests critical support:

• Immediate floor at 0.6550 (weekly low)
• Next support at 0.6524 (monthly low)
• Resistance emerges at 0.6600/06 zone

A break below 0.6550 could accelerate declines, while reclaiming 0.6606 might open path toward 0.6622 (21-day EMA).

Broader Market Context

Additional factors influencing AUD:

• US Treasury yields remain subdued
• Geopolitical risks elevate safe-haven demand
• Australia's weak December retail sales (-2.7% vs -0.9% expected)

With multiple catalysts converging, AUD traders face heightened volatility through week's end, particularly with US employment data pending.