In a reversal of fortunes, the Australian Dollar (AUD) experienced a downturn, snapping a four-day winning streak on Tuesday, largely influenced by a resurgent US Dollar (USD). Elevated US Treasury yields played a pivotal role in bolstering the Greenback, exerting downward pressure on the AUD/USD pair. Additionally, the Australian currency faced headwinds from a weakened Aussie money market. The decline was exacerbated by a halt in the S&P/ASX 200 index’s winning streak, marked by declines in mining and energy stocks attributed to softer commodity prices.
The Reserve Bank of Australia‘s (RBA) minutes from the February monetary policy meeting failed to prompt significant reactions from the Australian Dollar. The RBA Board deliberated on the possibility of a 25 basis points rate hike or maintaining the status quo. While board members expressed increased confidence in inflation returning to target, caution prevailed, with acknowledgment that it would “take some time” before sufficient confidence in inflation could be attained. Consequently, the board deemed it appropriate not to rule out another rate hike.
The US Dollar Index (DXY) edged higher as markets resumed post a holiday-extended weekend, with investors awaiting the release of the US Federal Open Market Committee (FOMC) Minutes scheduled for Wednesday. ANZ predicts the Federal Reserve (Fed) will initiate rate cuts from July 2024, with the CME FedWatch Tool indicating a 53% probability of a 25 basis points cut in the June meeting.
In other market updates, the ANZ-Roy Morgan Consumer Confidence improved slightly, reaching 82.8 from 82.6, while the Westpac outlook anticipates a resilient Australian economy throughout 2024, supported by low unemployment and robust corporate sector balance sheets.
The People’s Bank of China (PBoC) maintained its one-year Loan Prime Rate (LPR) at 3.45% and lowered the five-year LPR by 25 basis points to 3.95%. Meanwhile, the Federal Reserve’s dot plot indicates an expectation of 75 basis points in rate cuts for this year, with San Francisco Federal Reserve President Mary C. Daly suggesting three rate cuts as a reasonable baseline for 2024.
Technical analysis reveals the Australian Dollar trading near 0.6530, positioned above immediate support at the nine-day Exponential Moving Average (EMA) at 0.6523. On the upside, key resistance zones lie at the 23.6% Fibonacci retracement at 0.6543 and the major level of 0.6550. A breakthrough above this zone could propel the AUD/USD pair towards the psychological barrier of 0.6600, followed by the 38.2% Fibonacci retracement level of 0.6606.
