The Australian Dollar (AUD) has demonstrated resilience against the US Dollar (USD) for the third consecutive trading session, despite softer Australia’s Retail Sales (MoM) figures for April, which posted a modest 0.1% increase, reversing the previous month’s 0.4% decline. This growth fell short of market expectations, which had anticipated a 0.2% rise.
The AUD’s robust performance is further buoyed by an improved risk appetite among investors. Additionally, minutes from the recent Reserve Bank of Australia (RBA) meeting indicated the board’s challenge in predicting future changes to the cash rate, with recent data suggesting a likelihood of inflation remaining above the 2-3% target for an extended period.
Meanwhile, the US Dollar (USD) continues its descent, driven by declines in US Treasury yields. The US Dollar Index (DXY), a measure of the USD’s value against six other major currencies, hovers around 104.50, while 2-year and 10-year yields on US Treasury bonds stand at 4.94% and 4.46%, respectively, at press time.
According to the CME FedWatch Tool, the probability of the Federal Reserve implementing a 25 basis-point rate cut in September has decreased to 44.9%, down from 49.6% a week earlier. Notably, several US Federal Reserve (Fed) officials, including Fed Governor Michelle Bowman, Cleveland Fed President Loretta Mester, and Minneapolis Fed President Neel Kashkari, are scheduled to speak on Tuesday.
In other market movements, at the 2024 BOJ-IMES Conference, Cleveland Federal Reserve President Loretta Mester emphasized the importance of detailed FOMC statements outlining the current economic assessment and its impact on the outlook. Additionally, Fed Governor Michelle Bowman highlighted the necessity of reducing the balance sheet size to achieve ample reserves, particularly during economic strength, while clarifying that changes to the run-off rate do not signify a shift in monetary policy stance.
China’s recent measures to support its property sector, including reductions in down payment requirements and mortgage rates, alongside the launch of a US$47 billion state-backed fund to bolster its semiconductor industry, could significantly influence the Australian market due to the countries’ close trade ties.
Furthermore, economic indicators such as the University of Michigan’s 5-year Consumer Inflation Expectations and the US Census Bureau’s Durable Goods Orders provide insights into consumer sentiment and industrial activity, impacting currency movements.
From a technical standpoint, the AUD/USD pair trades around 0.6660, exhibiting a bullish bias within a rising wedge pattern on the daily chart. The 14-day Relative Strength Index (RSI) supports this outlook, hovering slightly above the 50 level.
Upside potential for the AUD/USD pair includes a possible ascent to a four-month high of 0.6714, followed by the upper limit of the ascending triangle near 0.6730. Conversely, key support levels lie at the 21-day Exponential Moving Average (EMA) at 0.6618 and the psychological barrier of 0.6600, with further downside pressure potentially targeting the throwback support region at 0.6470.
