The Australian Dollar (AUD) continued its upward trend on Monday, gaining against the weaker US Dollar (USD) for the second consecutive session. However, the Aussie Dollar faced some challenges following China’s decision to keep its interest rates steady. The People’s Bank of China (PBOC) maintained the one-year and five-year Loan Prime Rates (LPR) at 3.45% and 3.95%, respectively. Despite this, the AUD remained buoyed by improved risk sentiment in the market.
While the AUD saw some gains, it may face obstacles as Australia’s 10-year government bond yield dipped to around 4.2%, marking its lowest level in a month. This decline followed a softer domestic jobs report for the first quarter, with slowing wage growth dampening expectations of interest rate increases by the Reserve Bank of Australia (RBA). Australia’s Wage Price Index (QoQ) rose by 0.8% in the first quarter, falling short of the market forecast and indicating the smallest increase since late 2022.
The US Dollar encountered its own challenges as US Treasury yields edged lower. The Federal Reserve (Fed) remained cautious about inflation and the possibility of rate cuts in 2024. Federal Reserve Board of Governors member Michelle Bowman highlighted concerns about the progress of inflation, noting that there has been no significant improvement this year. This cautious stance could impact the performance of the USD in the near term.
The relationship between the Australian Dollar and the Chinese economy remains crucial, with China being Australia’s largest trading partner. Any economic developments in China can impact the Australian market significantly. Recent data showed a slowdown in China’s Retail Sales growth in April, marking the 15th consecutive month of expansion but at a slower pace. Industrial Production, on the other hand, exceeded expectations, indicating some resilience in the Chinese economy.
In terms of technical analysis, the Australian Dollar was hovering around the psychological level of 0.6700 against the US Dollar on Monday. The AUD/USD pair displayed an ascending triangle formation on the daily chart, with the 14-day Relative Strength Index (RSI) signaling a bullish sentiment. The pair could test the upper limit of the triangle near the four-month peak of 0.6714, with potential support at the nine-day Exponential Moving Average (EMA) at 0.6653.
Overall, the Australian Dollar’s performance may be influenced by a combination of domestic economic factors, global market sentiment, and developments in key trading partners such as China. Traders and investors will continue to monitor data releases, central bank policy decisions, and geopolitical events that could impact the value of the AUD. As uncertainties persist in the global economy, the Australian Dollar’s resilience and its ability to navigate challenges will be closely watched by market participants.
