The Australian Dollar (AUD) saw a continued upward trend for the second consecutive session on Tuesday, bolstered by a resurgence in risk appetite. This positive sentiment stems from a de-escalation of geopolitical tensions in the Middle East, following statements from an Iranian official last week indicating no immediate plans for retaliation against Israeli airstrikes, as reported by Reuters.
Boosting the Australian Dollar further was the release of Australia’s Judo Bank Purchasing Managers Index (PMI) data on Tuesday. The Composite PMI surged to a 24-month high of 53.6 in April, marking an improvement from the previous month’s 53.3. This robust performance signals a rapid expansion in the Australian private sector during the second quarter, with notable growth driven by the services sector.
Conversely, the US Dollar Index (DXY), measuring the USD against six major currencies, experienced pressure due to a slight decline in US Treasury yields. Market expectations of the Federal Reserve keeping interest rates unchanged in the June meeting rose to 84.4%, up from the previous week’s 78.7%, according to the CME FedWatch Tool. Additionally, comments from Federal Reserve officials hinted at a more hawkish stance regarding the trajectory of interest rates in June.
Investors are closely monitoring the US S&P Global Purchasing Managers Index (PMI) on Tuesday, anticipating improvements in both the manufacturing and services sectors for April. Attention will shift to the Australian Monthly Consumer Price Index and quarterly RBA Trimmed Mean CPI data on Wednesday.
In April, Australia’s Judo Bank Manufacturing PMI surged to an eight-month high of 49.9, contrasting with March’s 47.3. However, the Services PMI dipped to a two-month low of 54.2, down from the previous reading of 54.4.
Meanwhile, the weekly ANZ-Roy Morgan Australian Consumer Confidence declined by 3.2 points to reach its lowest level this year at 80.3, compared to the previous reading of 83.5. ANZ highlighted decreases in both economic and financial subindices, with confidence declining across various housing cohorts, particularly among renters.
On the global front, the China Securities Journal suggested the possibility of the People’s Bank of China (PBoC) lowering the Medium-term Lending Facility (MLF) rate on May 15 to reduce funding costs, potentially impacting the Australian market given the strong trade relationship between China and Australia.
In monetary policy news, the People’s Bank of China maintained its Loan Prime Rate (LPR) at 3.45% on Monday, a crucial benchmark rate for Chinese banks in determining loan interest rates. Changes in Chinese monetary policy could potentially affect the Australian market due to the significant economic ties between the two countries.
Elsewhere, the Chinese Ministry of Commerce announced a new tariff on US goods, imposing a duty of 43.5% on imports of propionic acid from the United States, affecting various sectors including food, feed, pesticides, and medical applications, according to Reuters.
On the domestic front, technical analysis indicates the AUD trading around 0.6460 on Tuesday, testing pullback resistance near 0.6456. The 14-day Relative Strength Index (RSI) remains below the 50-level, with a bearishly resolved triangle indicating a prevailing bearish sentiment. Immediate support levels are identified at 0.6450 and 0.6400, with potential downside pressure towards April’s low of 0.6362 and the major level of 0.6350.
Conversely, the AUD/USD pair could target the psychological level of 0.6500, aiming to breach the symmetrical triangle and weaken the bearish sentiment. Resistance is expected near the upper boundary of the channel around the 0.6639 level.
