The Australian Dollar (AUD) relinquished its three-day streak of gains on Tuesday, a move likely attributed to Australia’s unanticipated current account deficit of A$ 4.9 billion (USD 3.2 billion) in the first quarter. This departure from the downwardly revised surplus of A$ 2.7 billion in the preceding quarter fell short of market projections, which had anticipated a surplus of A$ 5.9 billion.
In a press release issued by the Australian Bureau of Statistics (ABS), Grace Kim, ABS head of International Statistics, remarked, “The current account deficit reflects a diminished trade surplus, driven by an increase in imports of goods, while the net primary income deficit expanded.” Imports of goods surged by 4.5% in Q1, spurred by consumption goods, while exports of goods declined by 1.5%, primarily due to reduced domestic coal and iron ore production.
Meanwhile, the US Dollar (USD) saw marginal gains as US Treasury yields improved, a move largely attributed to prevailing risk aversion sentiments. However, the Greenback may encounter obstacles as Federal Reserve (Fed) officials indicated last week that the central bank could attain its 2% annual inflation target without further interest rate hikes.
Investor attention is now directed towards Australia’s Gross Domestic Product (GDP) data for the first quarter and China’s Caixin Services PMI for May, both slated for release on Wednesday. In the US, focus remains on the ADP Employment Change and ISM Services PMI reports.
Market Movers: Australian Dollar Sees Depreciation Amid Risk Aversion
The ISM Manufacturing PMI experienced an unexpected dip to 48.7 in May, down from April’s reading of 49.2 and below the forecasted 49.6. This marks the US manufacturing sector’s second consecutive month of contraction, marking the 18th time in the past 19 months.
Australia’s Judo Bank Manufacturing PMI, released on Monday, showed a slight uptick to 49.7 in May from 49.6 in April, indicating the fourth consecutive month of declining conditions in the manufacturing sector.
In China, the Caixin China Manufacturing PMI climbed to 51.7 in May from 51.4 in April, marking the seventh consecutive month of expansion in factory activity, surpassing estimates. However, Friday’s NBS PMI data revealed a drop in manufacturing activity to 49.5 in May from 50.4 in April, missing expectations. Meanwhile, the Non-Manufacturing PMI declined to 51.1 from the previous reading of 51.2, falling short of estimates.
Federal Reserve Comments and RBA Insights:
Last week, Atlanta Fed President Raphael Bostic expressed his belief in an interview with Fox Business that further rate hikes might not be necessary to achieve the Fed’s 2% annual inflation target. Additionally, New York Fed President John Williams stated that while inflation remains elevated, it is expected to moderate over the second half of 2024, indicating a lack of urgency in altering monetary policy.
According to a Bloomberg report, RBA Assistant Governor Sarah Hunter emphasized at a conference in Sydney on Thursday that “inflationary pressures” remain a key concern, with the RBA Board expressing apprehension about inflation persisting above the target range of 1%-3%, hinting at sustained inflationary pressures. Wages growth seems to have plateaued.
Technical Analysis: Australian Dollar Maintains Position Above 0.6650
The Australian Dollar is trading around 0.6680 on Tuesday. Analysis of the daily chart suggests a bullish inclination for the AUD/USD pair, with indications of an upward movement from the lower boundary of a rising wedge pattern. Additionally, the 14-day Relative Strength Index (RSI) sits above the 50 level, corroborating this bullish sentiment.
The AUD/USD pair may target the psychological level of 0.6700, followed by the four-month high of 0.6714 and the upper boundary of the rising wedge around 0.6750.
On the downside, immediate support is noted at the 21-day Exponential Moving Average (EMA) at 0.6632, followed by the lower boundary of the rising wedge and the psychological level of 0.6600. Further downside movement could exert pressure on the AUD/USD pair, potentially leading it towards the throwback support region at 0.6470.
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