The Australian Dollar (AUD) has remained strong against the USD, reaching highs not seen since January despite weaker Trade Surplus figures. The USD has weakened following the release of soft economic data recently. The Australian economy is showing signs of weakness, but the Reserve Bank of Australia (RBA) is hesitating to initiate rate cuts due to high inflation. As one of the last G10 countries to consider rate reductions, this could prolong the Aussie’s gains as markets speculate on potential rate hikes.
The updated Trade Surplus figures for May in Australia came in lower than expected at 5,773M MoM, down from the previous reading of 6,548M. However, Goods/Services Exports rose by 2.8% on a monthly basis, offering some support to the Aussie. The RBA’s minutes indicated a preference for holding the policy rate steady due to uncertainty around consumption data and financial stress among households. With the possibility of rate hikes on the horizon, the Aussie could continue to strengthen.
From a technical analysis standpoint, the AUD/USD pair shows strong momentum with indicators like the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) in positive territory. The pair is currently at January highs, signaling a positive outlook for the bulls. Resistance levels are at 0.6730 and 0.6750, with potential support levels at 0.6670, 0.6650, and 0.6630.
Central banks play a crucial role in maintaining price stability in a country or region by managing inflation or deflation. Through tools like tweaking the benchmark interest rate, central banks aim to keep inflation close to 2%. Central bank members, known as ‘hawks’ or ‘doves’, have varying opinions on monetary policies, with ‘hawks’ favoring higher interest rates to control inflation and ‘doves’ preferring a loose monetary policy to stimulate the economy. The chairman or president of a central bank leads meetings and communicates the monetary policy stance and outlook to the markets.
Overall, the AUD/USD pair is expected to continue its strong momentum as the Australian economy navigates through a period of uncertainty. With the RBA potentially delaying rate cuts and the prospect of rate hikes, the Aussie could sustain its gains. Both technical indicators and economic data point towards a favorable outlook for the pair. The ongoing celebration of Independence Day in the US may keep trading activity subdued, allowing the AUD to maintain its position against the weaker USD.
