The Australian Dollar (AUD) underwent a retracement of its recent gains on Tuesday, with investors closely eyeing the imminent Yearly Budget Release by the Australian Government scheduled for later in the day. Treasurer Jim Chalmers hinted at favorable developments during Sunday’s television interviews, suggesting a potential acceleration in inflation decline compared to the Reserve Bank of Australia‘s (RBA) projections, as reported by The Guardian.
The AUD faced downward pressure following the RBA’s adoption of a less hawkish stance after opting to maintain its interest rate at 4.35% last week. Market speculation, fueled by robust inflation data surpassing expectations, had hinted at a potential shift towards a more hawkish position by the central bank.
Meanwhile, the US Dollar Index (DXY), reflecting the performance of the USD against six major currencies, advanced amid cautious remarks from Federal Reserve (Fed) officials emphasizing the necessity of prolonged higher rates amidst elevated inflation levels. Fed Vice Chair Philip Jefferson echoed these sentiments on Monday, advocating for the retention of current interest rates until signs of inflation easing become more apparent.
In Tuesday’s market activity, investors are anticipated to closely monitor the Producer Price Index (PPI), a crucial economic indicator that could significantly influence market sentiment. Traders may utilize the PPI report to gauge potential outcomes of the Consumer Price Index (CPI). Should the PPI data exceed expectations, it could further bolster the US Dollar.
The Australian market also witnessed notable developments, with National Australia Bank reporting a decline in Business Conditions to 7 in April, alongside a Business Confidence level remaining at 1. Additionally, Australia’s Treasury projected a potential re-entry of inflation into the RBA’s target range by the end of 2024.
Moreover, technical analysis suggests the AUD/USD pair maintaining its position near the major level of 0.6600, consolidating within a symmetrical triangle pattern. Bullish inclinations are indicated by the 14-day Relative Strength Index (RSI) remaining above the 50 level, with potential movements possibly challenging upper boundaries near 0.6650 and 0.6667, while immediate support is anticipated around the 14-day Exponential Moving Average (EMA) at 0.6569.
As market dynamics continue to unfold amidst evolving economic indicators and central bank policies, traders remain attentive to potential shifts in currency valuations and market sentiment.
