AUD/USD Price Analysis – Feb 20, 2024

Daily Price Outlook

During the early European session, the AUD/USD currency pair was unable to stop its previous session's losing streak and remained under pressure around 0.6530. However, the bearish bias could be attributed to the bullish US dollar, which has been gaining momentum for the fifth consecutive week, backed by upbeat US data, including strong inflation figures released earlier. Therefore, the bullish trend in the US dollar has exerted pressure on the AUD/USD pair.

Although, the gains in the US dollar could be faded by recent dovish comments from Fed officials, such as San Francisco Fed President Mary C. Daly and St. Louis Fed President James Bullard, which could help the AUD/USD pair to limit its losses. Furthermore, the previously released downbeat data on Australia's ASX 200 index was seen as another key factor adding pressure to the AUD/USD pair.

Aussie Money Market Weakness and RBA Caution Impact on AUD/USD Pair

Apart from this, the weaker Aussie money market has also played a major role in undermining the AUD/USD pair. Moreover, the S&P/ASX 200 index recently ended its upward trend, mainly due to declines in mining and energy stocks caused by lower commodity prices. It is worth noting that the Reserve Bank of Australia (RBA) discussed the option of raising rates by 0.25% or leaving them unchanged in their February meeting. Although they're more confident about inflation improving, they believe it'll still take some time.

Hence, the weaker Aussie money market, along with declining commodity prices and cautious RBA sentiments, has contributed to undermining the AUD/USD pair.

US Dollar Strength and Federal Reserve's Policy Uncertainty's Impact on AUD/USD Pair

Another factor pressuring the AUD/USD pair is the strong US dollar. Despite the dovish stance by the Federal Reserve, the US dollar has been gaining momentum, with the Federal Reserve suggesting possible rate cuts. San Francisco Fed President Daly mentioned three cuts as a baseline for 2024. However, the upward trend in the US dollar can be attributed to the upbeat US data, which includes strong inflation data.

On the data front, the Michigan Consumer Sentiment Index rose slightly to 79.6, just below the expected 80.0. The US Core Producer Price Index increased by 2% year-over-year in January, beating expectations. However, Building Permits decreased to 1.470 million, missing the anticipated rise.

Hence, the positive impact on the dollar could come from the better-than-expected increase in the US Core Producer Price Index, which suggests potential inflationary pressures, viewed as beneficial for the dollar and bearish for the AUD/USD pair.

On the other side, the Federal Reserve forecasts a cut of 75 basis points in interest rates for this year, whereas market futures anticipate approximately 89 basis points in cuts. San Francisco Fed President Mary C. Daly advocates for a three-time interest rate cut in 2024 to avoid leaving the economy unattended. Meanwhile, St. Louis Fed President James Bullard recommends a rate reduction in March to bolster economic activity. Hence, the mixed signals on rate cuts and the suggestion for further easing from Fed officials could negatively impact the US dollar, reflecting uncertainty and potential weakness in the economy.

People's Bank of China's Policy Decisions Impact on AUD/USD Pair

On the positive side, the People's Bank of China (PBoC) maintained the one-year Loan Prime Rate (LPR) at 3.45% and reduced the five-year LPR by 25 basis points to 3.95%. Additionally, the PBoC kept the Medium-term Lending Facility (MLF) rate steady at 2.5%. Hence, the PBoC's actions will likely positively influence the AUD/USD pair, as they signal efforts to stimulate the Chinese economy with lower rates, potentially boosting demand for Australian exports and strengthening the Australian dollar against the US dollar.

AUD/USD - Technical Analysis

The AUD/USD pair observed a slight decline in its value, registering a 0.14% decrease to position itself at 0.65285. This movement reflects a cautious sentiment prevailing in the forex market, with the Australian dollar facing resistance against its American counterpart. The pivot point for this currency pair is established at $0.6544, serving as a crucial juncture that could dictate the direction of subsequent movements.

Key resistance levels are identified at $0.6577, $0.6603, and $0.6625, marking potential barriers the AUD/USD must overcome to signal a bullish trend. Conversely, support levels are positioned at $0.6497, $0.6477, and $0.6453, which could offer a safety net against further declines. The Relative Strength Index (RSI) stands at 53, indicating a relatively balanced market dynamic between buyers and sellers, yet leaning slightly towards a bearish bias.

The 50-Day Exponential Moving Average (EMA) at 0.6519 underscores a critical support level, suggesting that the AUD/USD pair is navigating close to its short-term trend indicator. The technical outlook suggests a nuanced approach to trading this pair, recommending a sell strategy below the pivot point of 0.65427, with a target take profit at 0.64981 and a stop loss set at 0.65667. This strategy reflects a tactical response to the pair's current stance, aiming to capitalize on potential downward movements while mitigating risk.