The Australian Dollar (AUD) continued its upward momentum for the second consecutive session on Monday, buoyed by a weaker US Dollar (USD). However, gains were trimmed following China’s interest rate decision by the People’s Bank of China (PBOC), which kept the one-year and five-year Loan Prime Rates (LPR) steady at 3.45% and 3.95%, respectively. Traders are now eagerly awaiting the release of the Reserve Bank of Australia (RBA) Meeting Minutes scheduled for Tuesday.
Despite the positive sentiment, the Australian Dollar faces challenges as Australia’s 10-year government bond yields hover around 4.2%, marking its lowest level in a month. This decline in bond yields follows a softer domestic jobs report for the first quarter, with slowing wage growth dampening expectations of any interest rate hikes by the RBA. Australia’s Wage Price Index (QoQ) for the first quarter increased by 0.8%, falling short of the market’s forecast of a 0.9% rise and marking the smallest increase since late 2022.
In global markets, the US Federal Reserve (Fed) maintains a cautious stance regarding inflation and the potential for rate cuts in 2024. Federal Reserve Board of Governors member Michelle Bowman’s remarks on Friday underscored concerns about the steadiness of inflation progress, highlighting that there has been no significant improvement in inflation this year.
Market movements also reflect ongoing geopolitical tensions, with the Chinese Commerce Ministry announcing a ban on General Atomics Aeronautical Systems, a US company, from import and export activities related to China, amid escalating trade tensions between the US and China.
On the economic front, China’s Retail Sales for April increased by 2.3% year-over-year, below March’s 3.1% and falling short of expectations. Industrial Production, however, improved by 6.7% year-over-year, surpassing expectations and indicating resilience in China’s manufacturing sector.
Meanwhile, in the US, Initial Jobless Claims rose to 222,000 for the week ending May 10, slightly above market expectations but below the previous week’s figure, suggesting a mixed outlook for the labor market.
Technical analysis suggests that the AUD/USD pair is hovering around the psychological level of 0.6700, with an ascending triangle formation observed on the daily chart. The 14-day Relative Strength Index (RSI) indicates a bullish sentiment, holding above the 50 mark. The pair could test the upper limit of the ascending triangle near the four-month peak of 0.6714, with potential resistance at 0.6750. On the downside, support levels are seen at the nine-day Exponential Moving Average (EMA) at 0.6653 and the major level of 0.6650, with further support at 0.6610 and 0.6600.
