The Australian Dollar (AUD) continued its decline for a second consecutive day on Tuesday, influenced by several key developments impacting its valuation.
The downturn can be largely attributed to the Reserve Bank of Australia‘s (RBA) Index of Commodity Prices, which showed a 4.1% year-on-year decrease in June, marking a moderation from the previous month’s 6.0% decline. This is the mildest deflation observed in sixteen months, reflecting ongoing economic challenges.
In addition, the Minutes from the RBA’s June monetary policy meeting, released on Tuesday, highlighted the board’s stance favoring holding rates steady over raising them. While noting potential upside risks to inflation, particularly from the Consumer Price Index (CPI) data in May, the RBA emphasized a cautious approach.
Meanwhile, the US Dollar (USD) saw appreciation driven by an increase in US Treasury yields, fueled by heightened expectations of potential interest rate deductions by the US Federal Reserve in 2024. Market attention remains fixed on Federal Reserve Chairman Jerome Powell’s upcoming speech.
Domestically, the Melbourne Institute’s Monthly Inflation Gauge indicated continued inflationary pressures, potentially influencing the RBA’s decision-making on future rate adjustments, possibly as soon as August.
Externally, the prospect of policy adjustments by the People’s Bank of China, including potential reductions in the reserve requirement ratio (RRR), could impact the Australian Dollar due to Australia’s significant trade ties with China.
Economic indicators further compounded pressure on the AUD, such as the Judo Bank Australia Manufacturing PMI, which fell sharply to 47.2 in June, marking the fastest deterioration since May 2020. Similarly, the weaker-than-expected US Manufacturing Purchasing Managers Index (PMI) for June added to global economic concerns.
Looking ahead, technical analysis suggests a neutral bias for the AUD/USD pair, currently trading around 0.6640. The pair is consolidating within a rectangle formation on the daily chart, with the 14-day Relative Strength Index (RSI) indicating neutral momentum. Resistance levels are anticipated near 0.6690 and 0.6700, while support may be found near the 50-day Exponential Moving Average (EMA) at 0.6622.
The outlook for the Australian Dollar hinges on upcoming economic data releases and global market developments, underscoring the currency‘s sensitivity to both domestic indicators and external macroeconomic factors.
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