The Australian Dollar (AUD) experienced a rise in value on Thursday despite the release of weaker-than-expected data on Trade Balance and Building Permits. The positive market sentiment, fueled by dovish remarks from Federal Reserve Chairman Jerome Powell, provided support for the AUD/USD pair. The Australian Dollar’s ascent can also be attributed to the hawkish sentiment surrounding the Reserve Bank of Australia (RBA), with expectations for the RBA to maintain higher interest rates well into 2024, following the release of higher-than-expected domestic inflation data last week.
In contrast, the US Dollar Index (DXY) faced pressure after Chairman Powell dismissed the possibility of a further rate hike during the Federal Reserve’s recent interest rate decision. The Federal Reserve opted to maintain interest rates at 5.25%-5.50% during the May meeting. Traders are now looking ahead to crucial US economic data releases, including Initial Jobless Claims, Nonfarm Productivity, and Factory Orders, which will provide insights into the state of the US economy.
The positive market sentiment that favored risk-sensitive currencies like the Australian Dollar was also reflected in Australia’s Trade Balance (MoM) data, which showed a surplus of 5,024 million in April, falling short of market expectations. Additionally, Australian Building Permits rose by 1.9%, below the anticipated 3.0% increase in March. The ASX 200 Index saw a small increase on Thursday, likely influenced by the positive market sentiment following Powell’s remarks during the Federal Open Market Committee (FOMC) conference.
Federal Reserve Chairman Jerome Powell highlighted stagnant progress on inflation and suggested that more time would be needed for inflation to approach the 2% target. However, robust hiring and stagnant inflation could delay rate cuts. The ADP US Employment Change reported private businesses adding 192,000 workers to their payrolls in April, exceeding expectations. Conversely, the ISM US Manufacturing PMI fell to 49.2 in April, indicating a contraction in the US manufacturing sector.
ANZ predicts the Reserve Bank of Australia may start reducing interest rates in November, driven by last week’s inflation data. Similarly, Commonwealth Bank revised its forecast for the RBA’s first interest rate cut timing to November. The CME FedWatch Tool indicated a high likelihood of the Federal Reserve maintaining interest rates at the current level during the June meeting, underscoring the market sentiment favoring risk-sensitive currencies such as the Australian Dollar.
In terms of technical analysis, the Australian Dollar traded around 0.6530 on Thursday and re-entered a symmetrical triangle pattern. The 14-day Relative Strength Index (RSI) indicated a bullish bias. The AUD/USD pair could challenge the upper boundary at 0.6580, followed by the psychological level of 0.6600, with a breakthrough potentially leading to further gains. Conversely, a move toward the lower boundary of the symmetrical triangle around the nine-day Exponential Moving Average (EMA) at 0.6509 could exert pressure on the pair.
Overall, the Australian Dollar’s recent gains can be attributed to positive market sentiment, as well as expectations for the RBA to maintain higher interest rates following strong domestic inflation data. Despite weaker-than-expected economic data releases, the AUD has continued to rise against the US Dollar, also reflecting dovish remarks from Federal Reserve Chairman Jerome Powell. Traders are now closely monitoring US economic data releases and market developments to gauge the outlook for both the Australian Dollar and the US Dollar.
