The Australian dollar (AUD) holds its ground against the US dollar (USD) with a positive outlook as recent data reveals steady business conditions in Australia for the month of March. Despite a rise in Treasury yields, the USD remains weak as investors await the US inflation report with caution.
According to recent data, Australia’s business conditions in March showed minimal change despite the pressure from higher interest rates on the economy. Sales and employment remained stable during this period. However, concerns persist among companies regarding the economic outlook, particularly as the Reserve Bank of Australia indicates no immediate plans for rate cuts. Market expectations currently anticipate the first rate cut around November.
In contrast, investors in the US have tempered their expectations for rate cuts following the release of the March employment report, which highlighted a robust labor market. With demand still strong in the US economy, any potential interest rate adjustments by the Federal Reserve must be carefully timed to prevent inflationary pressures.
As a result, there is uncertainty in the market regarding the possibility of the Fed initiating rate cuts in June. Furthermore, market projections now suggest only a 60 basis point reduction in rates for 2024.
The upcoming release of consumer inflation data in the US is anticipated to be a significant economic event. Economists predict a decline in inflation for March, although there is potential for surprise on the upside. Should this occur, it would further diminish expectations for rate cuts and potentially push the timeline for the first cut to July.
From a technical standpoint, the AUD/USD price trend remains bullish, trading above a recently broken trendline. The recent reversal to a bullish trend occurred when the price surpassed a resistance trendline and subsequently retraced to retest the trendline before climbing once again. Confirmation of the breakout would require bulls to establish a higher high above the critical resistance level of 0.6620. Given the prevailing bullish bias, supported by the price sitting comfortably above the 30-SMA and the RSI indicating bullish momentum above 50, there is a strong likelihood of bulls retesting the key level of 0.6660 in the near future.
