The Australian Dollar (AUD) showed signs of resilience on Monday, bouncing back from an eight-week low of 0.6456 recorded last Friday. However, the AUD faced challenges against the US Dollar (USD) as traders turned to the USD amid escalating tensions in the Middle East.
Investor concerns grew following Iran’s attack on Saturday, targeting military sites in Israel with explosive drones and missiles. Israel reportedly intercepted most of the incoming projectiles, according to Reuters, but the incident heightened geopolitical tensions, affecting currency markets.
Meanwhile, the US Dollar Index (DXY) experienced a slight decline despite a hawkish sentiment surrounding the Federal Reserve’s (Fed) monetary policy outlook. Despite strong US inflation and positive macroeconomic indicators, subdued US Treasury yields contributed to the DXY’s downward trend.
Market participants are eagerly awaiting the release of US Retail Sales figures scheduled for Monday, along with key insights from Federal Reserve officials.
In other news, Australia’s Consumer Inflation Expectations for April rose to 4.6%, indicating potential inflationary pressures. Labor market data, including seasonally adjusted Employment Change and Unemployment Rate for March, is due to be released later in the week.
The People’s Bank of China (PBoC) maintained the 1-year medium-term lending facility (MLF) interest rate at 2.5%, injecting 100 billion Yuan through a one-year MLF operation.
Looking ahead, Chinese Gross Domestic Product (GDP) and Industrial Production data are set to be released on Tuesday.
Boston Federal Reserve (Fed) President Susan Collins projected ‘approximately two’ rate cuts for 2024, while also expecting inflationary pressures to ease later in the year. However, she noted that a rate hike is not currently part of the baseline scenario.
According to the CME FedWatch Tool, the likelihood of interest rates remaining unchanged in the June meeting has increased to 63.5%.
On the economic front, the US Michigan Consumer Sentiment Index for April decreased to 77.9, falling short of market expectations.
Technical analysis indicates a bearish sentiment for the AUD/USD pair, with key support at 0.6450. A breakthrough below this level could see the pair testing the region around 0.6400. Conversely, resistance is expected around the psychological level of 0.6500, with further upside potential towards the 14-day Exponential Moving Average (EMA) at 0.6535.
Despite ongoing geopolitical uncertainties, the Australian Dollar remains resilient, supported by economic fundamentals and market sentiment.
