The Australian Dollar (AUD) witnessed a surge in value following remarks from Reserve Bank of Australia (RBA) Governor Michele Bullock, signaling the central bank‘s readiness to raise interest rates should the Consumer Price Index (CPI) fail to return to its target range of 1%-3%. This statement, reported by NCA NewsWire on Wednesday, contributed to the AUD’s gains in the currency market.
However, the Australian currency’s upward trajectory faces constraints due to underwhelming Gross Domestic Product (GDP) figures. The economy saw a mere 0.1% quarter-on-quarter (QoQ) growth in the first quarter, falling short of the anticipated 0.2% growth, while the annual growth of 1.1% also slightly missed expectations. Moreover, the AUD/USD pair encountered pressure as the Judo Bank Purchasing Managers Index (PMI) for May registered at 52.5, below the forecasted 53.1, signaling a slower pace of economic expansion.
Conversely, the US Dollar (USD) is poised for a potential rebound driven by a corrective surge in US Treasury yields. The USD had previously weakened amidst speculation surrounding a Federal Reserve (Fed) interest rate cut. Investors are eagerly awaiting key US economic indicators scheduled for release later on Wednesday, including the US ADP Employment Change and ISM Services PMI reports.
In other market movements, the Judo Bank Composite PMI in Australia recorded a reading of 52.1 for May, indicating continued growth in the private sector output, albeit at a slower rate compared to April. Additionally, the Caixin China Services PMI surpassed expectations, reaching 54.0 in May, marking the 17th consecutive month of expansion in services activity. Any alterations in the Chinese economy are closely monitored, given its significant impact on the Australian market due to their close trade relations.
However, concerning US data, the JOLTS US Job Openings saw a decline in April to 8.059 million, marking the lowest level since February 2021, while the ISM Manufacturing PMI unexpectedly dropped to 48.7 in May, indicating a second consecutive month of contraction in the US manufacturing sector.
Technically, the AUD/USD pair hovers around 0.6650, exhibiting a bullish bias as indicated by its positioning within a rising wedge pattern on the daily chart. The 14-day Relative Strength Index (RSI) slightly above the 50 level further supports this bullish sentiment.
Potential upward targets for the AUD/USD pair include the psychological level of 0.6700, followed by the four-month high of 0.6714 and the upper boundary of the rising wedge at 0.6750. Conversely, immediate support levels lie 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 downward movement could test support near 0.6470.
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