The Australian Dollar (AUD) continues to experience downward pressure, a trend possibly influenced by investor caution ahead of the release of key US economic data, including the Gross Domestic Product Annualized (Q1) figures and the Core Personal Consumption Expenditures (PCE) Price Index. These impending data releases are poised to offer crucial insights into the Federal Reserve’s stance on potential interest rate adjustments.
Despite these pressures, the Australian Dollar’s losses may be tempered by the surge in the Australian 10-year Government Bond Yield, which has reached a four-week high of 4.52%. This increase reflects market sentiment that the Reserve Bank of Australia (RBA) will uphold higher interest rates for a prolonged period. Additionally, the AUD stands to benefit from the lifting of bans on beef shipments from major Australian producers by China, one of its largest trading partners.
Recent economic indicators from Australia, such as the robust Monthly Consumer Price Index released on Wednesday, have bolstered speculation that the RBA may consider further rate hikes. Minutes from the RBA’s May policy meeting indicated the central bank‘s contemplation of potential interest rate increases.
In contrast, the US Dollar Index (DXY) trades higher amidst risk aversion sentiment, currently hovering around 105.10. This has been reinforced by the slight growth in national economic activity reported in the Fed Beige Book, albeit with mixed conditions across industries and districts. Employment saw a marginal increase, while wage growth remained moderate, and consumer price resistance to further hikes was noted.
Market movers impacting the AUD include Australia’s Private Capital Expenditure exceeding expectations in Q1 and RBA Assistant Governor Sarah Hunter highlighting inflationary pressures and persistent concerns about inflation remaining above the target range. Additionally, statements from Atlanta Fed President Raphael Bostic questioning the assured path to 2% inflation and comments from Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, regarding the possibility of rate hikes have influenced market sentiment.
Technical analysis of the AUD/USD pair suggests a weakening bullish bias, with the pair breaking below the lower boundary of a rising wedge on the daily chart. The 14-day Relative Strength Index (RSI) positioned at 51 indicates a potential momentum shift. The pair could aim to retest the four-month high of 0.6714, while immediate support lies at the psychological level of 0.6600, followed by the 50-day Exponential Moving Average (EMA) at 0.6584. Further downside may lead to a test of the throwback support region at 0.6470.
