The Australian Dollar (AUD) has been gaining strength against the US Dollar (USD) due to improved risk appetite and softer Australia’s Retail Sales. Retail Sales in April only grew by 0.1%, falling short of the expected 0.2% and the previous 0.4% decline. The AUD’s strength is also supported by the recent Reserve Bank of Australia (RBA) meeting minutes indicating challenges in predicting future changes in the cash rate and inflation expectations remaining above the 2-3% target.
On the other hand, the US Dollar has been depreciating due to lower US Treasury yields. The US Dollar Index (DXY) has been trading around 104.50, with 2-year and 10-year yields on US Treasury bonds standing at 4.94% and 4.46%, respectively. The probability of the Federal Reserve implementing a rate cut in September has also decreased. Tuesday will see several US Federal Reserve officials speaking, including Fed Governor Michelle Bowman and others.
China’s Shanghai announced measures to support the property sector and launched a state-backed fund to strengthen its semiconductor industry, impacting the Australian market due to their close trade relationship. In the US, the University of Michigan’s 5-year Consumer Inflation Expectations for May fell slightly, while Durable Goods Orders in April showed a recovery. Australian Consumer Inflation Expectations for May also fell to 4.1%, the lowest level since October 2021.
Technical analysis of the Australian Dollar shows a potential upside with the AUD/USD pair possibly reaching a four-month high of 0.6714. On the downside, key support levels are the 21-day EMA at 0.6618 and the psychological level of 0.6600. Further decline could push the pair towards the throwback support region at 0.6470.
According to the percentage change table, the Australian Dollar was the strongest against the US Dollar on the day. The economic indicator Retail Sales s.a. (MoM) reflects the value of goods sold by retailers in Australia, with changes in Retail Sales being an indicator of consumer spending. A high reading is considered bullish for the Australian Dollar, while a low reading is seen as bearish.
Overall, the Australian Dollar continues to show strength against the US Dollar, supported by various factors including improved risk appetite and softer Retail Sales data. On the other hand, the US Dollar has been losing ground due to lower Treasury yields and reduced probability of a rate cut by the Federal Reserve. Economic indicators and developments in China also play a role in impacting the Australian market and the performance of the Australian Dollar. Investors and traders will be closely monitoring these factors to make informed decisions in the currency markets.
