The Australian Dollar (AUD) continued its downward trajectory for a second consecutive session on Friday, driven by a combination of mixed economic data from China and a slowing pace of wage growth in Australia. The AUD’s decline comes as the Australian bond market reflects concerns about the slowing economy.
The Aussie Dollar had already been under pressure after Thursday’s release of mixed employment figures. The yield on Australia’s 10-year government bond dropped to its lowest level in a month, reaching around 4.2%. This decline in bond yields signals a diminished likelihood of interest rate hikes by the Reserve Bank of Australia (RBA) in the near future.
The mixed economic data from China, a key trading partner for Australia, also weighed on the AUD. While China’s industrial production grew by a robust 6.7% year-over-year in April, exceeding expectations, retail sales growth slowed to 2.3%, indicating a cooling consumer spending environment.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, rebounded from a multi-week low on Thursday. The Federal Reserve (Fed) remains cautious about inflation and the potential for rate cuts in 2024.
Key Economic Data:
China: Retail Sales rose 2.3% year-over-year in April, down from March’s 3.1% and below expectations. Industrial Production increased by 6.7% YoY, surpassing the anticipated 5.5%.
Australia: Australia’s Wage Price Index (QoQ) grew by 0.8% in the first quarter, below market forecasts of 0.9%, and the smallest increase since late 2022. Annual pay growth also slowed to 4.1% from the previous 4.2%.
US: The US Department of Labor reported that the number of Americans filing new claims for jobless benefits rose to 222,000 for the week ending May 10, exceeding market expectations.
Outlook:
Investors will be closely watching speeches from Minneapolis Fed President Neel Kashkari and San Francisco Fed President Mary Daly later in the day for further insights into the Fed’s future policy path.
The Australian government is focused on tackling inflation and alleviating the cost of living pressures, but the weakening AUD and the sluggish wage growth may complicate their efforts.
The AUD/USD pair is trading near 0.6660, facing potential support at the 9-day EMA and the lower boundary of an ascending triangle formation.
Technical Analysis:
The AUD/USD pair could test the upper threshold of the ascending triangle, near the four-month peak of 0.6714. A break above this level could lead to a move towards the 0.6750 resistance level.
Support for the pair is found at the 9-day EMA at 0.6634, followed by the lower boundary of the ascending triangle around 0.6610. A break below this level might push the AUD towards the throwback support at 0.6550.
