The Australian Dollar (AUD) maintained its upward trajectory for the fourth consecutive session on Monday, propelled by a hawkish outlook surrounding the Reserve Bank of Australia (RBA). This bullish sentiment lent considerable support to the AUD/USD pair.
Expectations abound that the Australian central bank will uphold the cash rate at a 12-year peak of 4.35% during its forthcoming Tuesday meeting. However, there’s speculation that it might reintroduce a soft tightening bias, particularly following last week’s release of inflation data surpassing expectations, as reported by The Australian Financial Review.
Meanwhile, the US Dollar Index (DXY), reflecting the performance of the US Dollar (USD) against six major currencies, remains under duress due to softer-than-anticipated US jobs data unveiled on Friday. This development has rekindled hopes for potential interest rate cuts by the US Federal Reserve (Fed) later this year. Market sentiment is expected to stay buoyant this week following Fed Chair Jerome Powell’s relatively dovish stance on monetary policy during Wednesday’s session.
In other market movements:
The TD Securities Inflation (YoY) figure, published by The University of Melbourne, dipped to 3.7% in April from the previous month’s 3.8%, while the monthly rate remained steady at 0.1%.
China’s Caixin Services Purchasing Managers’ Index (PMI) for April saw a slight decline to 52.5 from 52.7 in March, aligning with expectations. However, it signifies the 16th consecutive month of expansion in services activity, a positive trend potentially uplifting Australia’s market due to its significant role as a major exporter to China.
On Friday, Nonfarm Payrolls data revealed that the US economy added 175,000 jobs in April, falling short of the estimated 243,000 and indicating a notable deceleration from March’s addition of 315,000 jobs.
According to the CME FedWatch Tool, the likelihood of the Federal Reserve maintaining interest rates within the current range of 5.25%-5.50% during the June meeting has risen to 91.6%, up from 88.9% a week ago.
The Judo Bank Australia Composite Purchasing Managers Index (PMI) showed a slight deceleration in April, suggesting a slower growth in Australian private sector output, primarily confined to the service sector while manufacturing output continued to decline.
Analysts at Commonwealth Bank and Westpac forecast that the RBA’s interest rate will peak at 4.35% in November 2023, then decline to 3.10% by December 2025.
The RBA is expected to maintain its key policy rate at 4.35% for a fourth consecutive meeting on Tuesday, likely until the end of September, according to a Reuters poll of economists. These economists anticipate only one interest rate cut this year.
Federal Reserve Bank of Chicago President Austan Goolsbee commented on the April labor market data, stating to Bloomberg TV that the report was robust. Goolsbee emphasized the need for the Fed to determine whether it remains committed to reducing inflation, noting that if the Fed maintains a restrictive stance for too long, it will need to consider the employment aspect of its mandate.
Technical Analysis:
The Australian Dollar traded around 0.6620 on Monday, maintaining its position within a symmetrical triangle pattern, with the 14-day Relative Strength Index (RSI) above the 50-level, indicating a bullish bias.
The AUD/USD pair may retest the upper boundary around the level of 0.6649, with a breakthrough potentially leading to exploration of the region around March’s high of 0.6667.
On the downside, immediate support for the AUD/USD pair could be found at the psychological level of 0.6600, followed by the nine-day Exponential Moving Average (EMA) at 0.6552. A breach below the latter may pressure the pair to test the throwback support at the 0.6480 level, followed by the lower boundary of the symmetrical triangle around the level of 0.6465.
