The Australian Dollar (AUD) managed to recover from its earlier losses following the release of higher-than-expected Monthly Consumer Price Index (CPI) data on Wednesday. This robust data has sparked speculation that the Reserve Bank of Australia (RBA) may consider implementing another rate hike, as indicated in the minutes from the RBA’s May policy meeting, which hinted at potential interest rate adjustments.
Earlier in Asian trading hours, the Australian Dollar faced pressure due to increased risk aversion, driven by a stronger US Dollar (USD). The strength of the USD can be attributed to rising US Treasury yields, with the US Dollar Index (DXY) trading higher around 104.70, accompanied by 2-year and 10-year US Treasury yields at 4.96% and 4.54%, respectively.
The rebound of the US Dollar on Tuesday was fueled by remarks from Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, who suggested that a rate hike might still be possible. Kashkari’s comments, expressing uncertainty about the disinflationary process and predicting only two rate cuts, contributed to a decrease in the likelihood of a 25 basis-point rate cut by the Federal Reserve in September, according to the CME FedWatch Tool.
Looking ahead, Wednesday brings notable events such as a speech by New York Fed President John Williams and the release of the Fed’s Beige Book, offering insights into the current US economic situation.
Market Movements and Economic Highlights:
The International Monetary Fund (IMF) Deputy Managing Director Gita Gopinath announced an upgrade in China’s economic growth target to 5% from 4.6% for 2024, citing a robust first quarter.
Australia’s Monthly Consumer Price Index rose 3.6% year-over-year in April, exceeding expectations and previous readings.
US Housing Price Index (MoM) for March underperformed, coming in at 0.1% against expectations of 0.5%.
Australia’s Retail Sales (MoM) in April rose by 0.1%, falling short of market expectations.
China’s Politburo announced enhanced coordination of fiscal, monetary, and other policies, which could impact the Australian market.
Cleveland Federal Reserve President Loretta Mester emphasized the need for detailed FOMC statements, while Fed Governor Michelle Bowman stressed the importance of reducing the balance sheet size.
Technical Analysis:
The Australian Dollar is hovering around the key level of 0.6650 against the US Dollar. Analysis of the daily chart suggests a bullish bias for the AUD/USD pair within a rising wedge pattern. The 14-day Relative Strength Index (RSI) is slightly above the 50 level, supporting this bullish outlook.
Potential upside targets for the AUD/USD pair include a four-month high of 0.6714 and the upper limit of the rising wedge around 0.6740. Key support levels are identified at the 21-day Exponential Moving Average (EMA) at 0.6620 and the psychological mark of 0.6600. Further downside movement could target the throwback support region at 0.6470.
