The Australian Dollar (AUD) faced its third consecutive day of decline on Monday, primarily driven by broad strength in the US Dollar (USD). The USD remains buoyant amid expectations that US interest rates will maintain higher levels for an extended period. Federal Reserve (Fed) officials have indicated a median projection of one interest rate hike later this year, further supporting the Greenback.
Compounding the AUD’s downturn are mixed economic signals from China, Australia’s largest export market. Recent data reveals that while Chinese Retail Sales improved in May, surpassing expectations, Industrial Production figures fell short of estimates. These discrepancies in China’s economic performance contribute to selling pressure on the Aussie, given its significant export dependency on the Chinese market.
Investor focus now shifts to the upcoming Reserve Bank of Australia (RBA) interest rate decision scheduled for Tuesday, accompanied by Governor Michele Bullock’s press conference. Market analysts anticipate the RBA will maintain its cash rate at 4.35%, reflecting efforts to stabilize consumer prices amidst a tight employment market. A hawkish stance by the RBA could potentially bolster the AUD and limit further downside against the USD in the short term.
In the US, market participants await the release of Retail Sales data for May, expected to show improvement following a stagnant April figure of 0%. Positive Retail Sales data could reinforce expectations of economic resilience in the US, supporting the USD further.
From a technical perspective, the AUD/USD pair’s outlook remains cautiously bearish. Trading below its 100-day Exponential Moving Average (EMA), the AUD/USD faces immediate support around the 0.6580-0.6585 level, where the EMA converges with the lower Bollinger Band limit. A breach below this support zone could open the door for further declines towards 0.6510 and potentially down to 0.6465 and 0.6400.
On the upside, resistance levels to monitor include 0.6688 and 0.6715, with further targets at 0.6760, contingent on any weakening of the USD or positive developments for the AUD.
The ongoing dynamics between US monetary policy, Chinese economic indicators, and domestic RBA decisions will likely dictate the near-term trajectory of the AUD/USD pair, influencing market sentiment and trading strategies in the currency markets.
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