Despite the recent decline, the AUD might find support from a rise in the Australian 10-year Government Bond Yield, which reached a four-week high of 4.52%. This increase suggests that investors anticipate the Reserve Bank of Australia (RBA) will maintain higher interest rates for a longer period. Furthermore, the AUD could gain strength as China, one of Australia’s largest trading partners, has lifted bans on beef shipments from five major Australian meat producers, according to Bloomberg.
Australia’s Monthly Consumer Price Index, released on Wednesday, showed robust figures that could prompt the RBA to consider another rate hike. The minutes from the RBA’s May policy meeting indicated that the central bank had contemplated a potential interest rate increase.
The US Dollar Index (DXY), which measures the USD against six major currencies, trades higher around 105.10, with 2-year and 10-year US Treasury yields at 4.98% and 4.61%, respectively. Risk aversion sentiment is supporting the US Dollar (USD), putting pressure on the AUD/USD pair.
The Federal Reserve’s Beige Book report, covering April to mid-May, revealed slight national economic growth with mixed conditions across industries and districts. Employment rose slightly, wage growth was moderate, and prices increased modestly as consumers resisted further price hikes.
Daily Digest Market Movers: Australian Dollar Loses Ground Ahead of US Data
Australia’s Private Capital Expenditure rose by 1.0% in Q1, surpassing expectations for a 0.5% increase and the previous quarter’s 0.9% rise.
According to Bloomberg, RBA Assistant Governor Sarah Hunter emphasized at a Sydney conference that inflationary pressures remain a key concern. Hunter noted that the RBA Board is particularly worried about inflation staying above the target range of 1%-3%, suggesting persistent inflationary pressures. She also indicated that wage growth appears to be nearing its peak.
Bloomberg also reported that Atlanta Fed President Raphael Bostic stated the path to achieving 2% inflation is not guaranteed, highlighting the significant breadth of price increases. The CME FedWatch Tool indicates that the probability of the Federal Reserve implementing a 25 basis-point rate cut in September has decreased to 41.7%, down from 49.4% a week earlier.
Australia’s Monthly Consumer Price Index rose 3.6% year-over-year in April, exceeding the expected 3.4% and the previous 3.5%. On Tuesday, Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, suggested that a rate hike might still be possible, stating, “I don’t think anybody has taken rate increases off the table,” and expressed uncertainty about the disinflationary process, predicting only two rate cuts, according to MSN.
The US Housing Price Index (MoM) for March underperformed, with a 0.1% increase against 1.2% in February and an expected 0.5%. Australia’s Retail Sales (MoM) rose by 0.1% in April, a rebound from the previous 0.4% decline but falling short of market expectations of 0.2%.
Technical Analysis: Australian Dollar Could Test Key Level of 0.6600
The Australian Dollar trades around 0.6610 as of Thursday. An analysis of the daily chart indicates a weakening of the bullish bias for the AUD/USD pair, as it has broken below the lower boundary of a rising wedge. The 14-day Relative Strength Index (RSI) is at 51, and further decline may confirm the momentum shift.
The AUD/USD pair could potentially move back into the rising wedge to target the four-month high of 0.6714, followed by the upper limit of the rising wedge around 0.6740. On the downside, immediate support is at the psychological level of 0.6600, followed by the 50-day Exponential Moving Average (EMA) at 0.6584. A further decline could exert downward pressure on the AUD/USD pair, potentially driving it toward the throwback support region at 0.6470.
