• Australian Dollar faced challenges as investors returned to the US Dollar.
• Australian economic data will be crucial for the RBA’s policy tightening.
• Traders reconsider the possibility of rate cuts by the Fed in the first quarter of 2024.

The Australian Dollar (AUD) could halt a three-day losing streak on Wednesday on the tepid US Dollar (USD). The commodity-linked Aussie Dollar (AUD) faced downward pressure following the indications of sluggish global growth at the close of 2024, prompting investors to turn back to the USD. However, market players are now re-evaluating their aggressive bets on imminent rate cuts by the Federal Reserve (Fed) anytime soon. However, the positive surprise in China’s manufacturing data might have potentially limited the losses of the AUD.

Australia's economic data will play a pivotal role, especially with the Reserve Bank of Australia (RBA) emphasizing the significance of scrutinizing additional data to assess risk balance before making decisions on future interest rates. The recent release of the Judo Bank Manufacturing PMI on Tuesday indicated a softening in economic activity. The upcoming release of Composite and Services PMI data on Friday is highly anticipated to fall below the 50 readings, suggesting a potential contraction in these sectors.

The Australian Dollar could exhibit resilience, buoyed by persistent inflation and housing prices. The market expectations lean towards the RBA refraining from monetary policy tightening in the upcoming February meeting, which could contribute to the AUD's stability.

The US Dollar Index (DXY) could persist in its upward trajectory, propelled by enhanced US Treasury yields. However, the S&P Global Manufacturing PMI posted a lower-than-expected figure of 47.9, diverging from the anticipated consistency at 47.2.

Investors will likely observe US data on Wednesday, including the December ISM Manufacturing PMI, November JOLTS Job Openings, and the Federal Open Market Committee (FOMC) Minutes.

The FOMC Minutes could hold relevance following Chairman Jerome Powell's mention of potential rate cuts in the aftermath of the latest Federal Reserve (Fed) monetary policy decision.

Daily Digest Market Movers: Australian Dollar faces challenges on improved US Dollar

• Australia’s Judo Bank Manufacturing PMI indicated a modest contraction in manufacturing activity, declining to 47.6 in December from the previous reading of 47.8.
• China’s NBS Manufacturing PMI for December reduced to the reading of 49.0 from the previous 49.4 figure. The market expectation was an increase to 49.5. While NBS Non-Manufacturing PMI improved to 50.4 from the 50.2 prior but fell short of the 50.5 expected.
• China's Caixin Manufacturing Purchasing Managers Index (PMI) improved to a reading of 50.8, surpassing both the market consensus of 50.4 and the previous reading of 50.7.
• The Chicago Purchasing Managers Index reduced to 46.9 in December from the previous 55.8