The Australian Dollar (AUD) extended its downward trend for the fourth consecutive session on Friday, likely driven by risk aversion sentiments. The AUD/USD pair experienced downside pressure as the US Dollar (USD) gained ground, propelled by hawkish sentiments surrounding the Federal Reserve’s stance on maintaining higher policy rates for an extended period.
The Australian Dollar faced additional pressure as Consumer Inflation Expectations for future inflation over the next 12 months dropped to 4.1% in May from 4.6% in April, marking the lowest level since October 2021. This decline raised concerns about inflation remaining above the target for an extended duration. Minutes from the latest Reserve Bank of Australia (RBA) meeting revealed policymakers’ difficulty in determining future changes in the cash rate.
The US Dollar (USD) extended its gains following higher-than-expected Purchasing Managers Index (PMI) data from the United States (US) released on Thursday. These data raised concerns about prolonged elevated interest rates, driving Treasury yields higher. Furthermore, concerns about persistent inflation expressed in the latest Federal Open Market Committee (FOMC) Minutes contributed to the USD’s strength.
Investors are closely monitoring US Durable Goods Orders, which measure the value of orders received by manufacturers for durable goods intended to last for three years or more. Additionally, the Michigan Consumer Sentiment Index will provide insights into consumer attitudes regarding financial and income situations in the United States.
Market Movers: The ASX 200 Index rebounded, trading around 7,740 on Friday. However, Australian equities faced pressure amid lower commodity prices, fueled by stronger-than-expected US PMI data, raising concerns about prolonged higher interest rates by the Federal Reserve.
The preliminary data released on Thursday showed that Australian private sector activity remained expansionary for the fourth consecutive month in May. The preliminary Judo Bank Composite Purchasing Managers Index (PMI) moderated slightly to 52.6 in May from April’s reading of 53.0.
Geopolitical tensions in the Asia-Pacific region, with reports of Chinese fighter jets deployed around Taiwan-controlled islands, may impact the Australian market, given the close trade relationship between China and Australia.
Technical Analysis: The Australian Dollar hovers around the psychological level of 0.6600 against the US Dollar. Analysis of the daily chart suggests a weakening bullish bias as the AUD/USD pair breached the lower boundary of a rising wedge. The 14-day Relative Strength Index (RSI) positioned at the 50 level indicates potential bearish momentum.
A significant support level at 0.6550 is crucial, with further decline possibly targeting the throwback support region at 0.6470. On the upside, immediate resistance is expected near the nine-day Exponential Moving Average (EMA) at 0.6630, with a breakthrough reinforcing bullish sentiment toward the major level of 0.6650.
