The Australian Dollar (AUD) is experiencing gains as RBA Governor Michele Bullock stated that the central bank is prepared to increase interest rates if the Consumer Price Index (CPI) does not return to the target range of 1%-3%. However, the lower-than-expected Gross Domestic Product growth of 0.1% QoQ in the first quarter may limit the upside for the AUD. The Judo Bank Purchasing Managers Index (PMI) also came in below expectations for May, putting pressure on the AUD/USD pair.
On the other hand, the US Dollar (USD) may see a rebound due to an upward correction in US Treasury yields. The USD had weakened amidst speculation of a potential interest rate cut by the Federal Reserve (Fed). Key US data releases, including US ADP Employment Change and ISM Services PMI reports, are awaited to provide further insights into the market direction.
In Australia, the Judo Bank Composite PMI for May recorded a slight decrease, indicating continued private sector growth albeit at a slower rate. Meanwhile, the Caixin China Services PMI surpassed expectations at 54.0, marking the 17th consecutive month of expansion in services activity. Any changes in the Chinese economy can have an impact on the Australian market as both countries share close trade partnerships.
Recent economic data releases showed a decline in JOLTS US Job Openings and a current account deficit in Australia for the first quarter. The US manufacturing sector also experienced its second consecutive month of contraction, while Australia’s manufacturing conditions have been declining for four months. The current scenario suggests a mixed outlook for both economies.
In terms of technical analysis, the Australian Dollar hovers around 0.6650 against the USD. A bullish bias is indicated for the AUD/USD pair, with potential targets at 0.6700, 0.6714, and 0.6750. Immediate support levels are seen at 0.6632 and 0.6600, with a further decline potentially pushing the pair towards 0.6470.
In conclusion, the Australian Dollar’s movement is influenced by factors such as interest rates, Chinese economic health, Iron Ore prices, Trade Balance, and market sentiment. The current outlook for the AUD suggests a potential upside amidst economic challenges and uncertainties. Investors are advised to closely monitor key economic indicators and developments to make informed trading decisions.
