In the early European session on Thursday, the AUD/USD pair has found a temporary support level around the psychological barrier of 0.6500. However, market sentiment remains subdued as waning expectations for the Federal Reserve to initiate interest rate cuts in the first half of the year have dampened demand for risk-sensitive currencies like the Australian dollar.
During the Asian session, S&P 500 futures recorded marginal gains, but overall market sentiment remains cautious as investors turn their attention to the September policy meeting, anticipating a potential shift by the Fed towards rate cuts. This shift in sentiment follows the release of U.S. inflation data for March, which showed persistent inflationary pressures, diminishing prospects for early rate cuts. The U.S. Dollar Index (DXY) has climbed to 105.20, nearing a five-month high at 106.00.
Recent data from the U.S. Bureau of Labor Statistics revealed steady increases in both annual and monthly core Consumer Price Index (CPI), indicating that rate cuts are not currently warranted.
Meanwhile, expectations for the Reserve Bank of Australia (RBA) to reduce interest rates have also eased, fueled by a notable uptick in consumer inflation expectations. According to the Melbourne Institute, inflation expectations for the next 12 months surged to 4.6%, up from the previous reading of 4.3%.
The AUD/USD pair experienced significant selling pressure after failing to sustain a breakout from the Descending Triangle chart pattern on the daily timeframe. The currency pair is now descending towards the horizontal support level of the pattern, originating from the low of March 5 at 0.6477.
Furthermore, the AUD/USD has dipped below the 20-day Exponential Moving Average (EMA) near 0.6550, indicating weakened demand for the Australian dollar.
The 14-period Relative Strength Index (RSI) has witnessed a sharp decline after failing to breach the 60.00 mark, signaling limited upside potential.
Should the pair breach the low of March 28 at 0.6485, investors may consider initiating fresh short positions, targeting profits near the low of February 13 around 0.6440 and the psychological support level of 0.6400.
Conversely, a breakout above the high of March 21 at 0.6635 could pave the way for further upside momentum, with potential targets at the high of March 8 at 0.6667, followed by the psychological resistance level of 0.6700.
