The Australian Dollar (AUD) has displayed slight gains in early Thursday’s European session, buoyed by recent economic indicators and monetary policy signals. The Australian Judo Bank PMI report indicated ongoing business activity growth, albeit at a slower pace compared to previous months. This, coupled with the Reserve Bank of Australia‘s (RBA) recent stance, which was perceived as hawkish during its Tuesday meeting, has supported the AUD in the short term.
However, escalating geopolitical tensions in the Middle East, particularly concerning Israeli readiness for conflict with Hezbollah, pose potential risks. Such developments typically bolster safe-haven currencies like the US Dollar (USD). Market focus now turns to the upcoming US S&P Global Manufacturing and Services PMI data due on Friday. A positive outcome for US business activity in June could further strengthen the USD, potentially acting as a headwind for the AUD.
Market Highlights and Technical Analysis
Australian Judo Bank PMI Data: Composite PMI declined to 50.6 in June from 52.1 in May, with Manufacturing PMI at 47.5 (down from 49.7) and Services PMI at 51.0 (down from 51.2).
US Economic Indicators: Initial Jobless Claims rose to 238K, exceeding market expectations, while Building Permits and Housing Starts showed declines in May.
Federal Reserve Comments: Richmond Fed President Tom Barkin emphasized the Fed’s preparedness to support employment, contingent on data, while Minneapolis Fed President Neel Kashkari discussed the potential duration for inflation to reach the Fed’s target.
Technical Outlook for AUD/USD:
The AUD/USD pair remains within a descending trend channel established since May 14. Despite this, it maintains a constructive bias above the 100-day Exponential Moving Average (EMA) on the daily chart. The 14-day Relative Strength Index (RSI) signals bullish momentum, suggesting resistance levels are more likely to hold than break.
Bullish Scenario: A clear breakout above 0.6675 (upper boundary of the descending trend channel) could propel the pair towards the psychological level of 0.6700, with further targets at 0.6760 (January 4 high).
Bearish Scenario: Support is observed around 0.6592 (100-day EMA). A breach below this level could expose further downside towards 0.6565 (lower boundary of the channel), followed by 0.6510 (March 22 low) and 0.6465 (May 1 low).
In conclusion, while the AUD benefits from positive domestic indicators and supportive monetary policy signals, geopolitical tensions and upcoming US economic data pose potential challenges. Traders are advised to monitor key technical levels and external developments closely for potential shifts in market sentiment.
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