Technical Analysis

AUD/USD Price Analysis – June 4, 2024

By LonghornFX Technical Analysis
Jun 4, 20244 min

Daily Price Outlook

The AUD/USD currency pair remained bearish around the 0.6642 level, hitting an intraday low of 0.6631. The downward trend can be attributed to Australia's unexpected current account deficit of A$4.9 billion (USD 3.2 billion) in the first quarter, signaling weaker economic fundamentals and putting downward pressure on the AUD.

Additionally, the renewed strength of the US dollar, supported by higher US Treasury yields and prevailing risk aversion, contributed to the bearish trend. On the other hand, the RBA's concern about persistent inflationary pressure may support the AUD/USD pair by indicating potential interest rate hikes, thus limiting losses against the USD.

AUD/USD Pair Faces Pressure from Economic Data and Inflation Concerns

On the AUD front, the Australian Bureau of Statistics (ABS) reported a current account deficit due to increased imports, especially of consumption goods, which outweighed a decrease in exports, mainly coal and iron ore.

This news added pressure on the Australian dollar. Additionally, RBA Assistant Governor Sarah Hunter highlighted inflationary concerns, noting that inflation staying above the target range of 1%-3% is a key issue.

On the data front, Australia's Judo Bank Manufacturing PMI, released on Monday, showed a slight increase to 49.7 in May from 49.6 in April. This marks the fourth straight month of declining conditions in the manufacturing sector, suggesting ongoing challenges for this part of the economy.

Therefore, the AUD/USD pair faces downward pressure due to Australia's current account deficit and manufacturing sector challenges, alongside inflation concerns. However, potential interest rate hike expectations could counteract some of these effects.

US Dollar Strength Faces Challenges Amid Fed Comments and Weak Manufacturing Data

On the US front, the US Dollar is strengthening as US Treasury yields improve, amid risk-off market sentiment. However, the gains in the US dollar could be short-lived as Federal Reserve (Fed) officials suggested that the central bank could meet its 2% annual inflation target without further interest rate hikes.

Atlanta Fed President Raphael Bostic stated in an interview that he doesn't see the need for more rate hikes to achieve the target. Similarly, New York Fed President John Williams mentioned that while inflation remains high, it should ease in the latter half of 2024, signaling a cautious approach towards monetary policy adjustments.

On the data front, the ISM Manufacturing PMI unexpectedly fell to 48.7 in May, down from April's 49.2 and below the forecast of 49.6. This marks the second consecutive month of contraction for the US manufacturing sector, with 18 out of the last 19 months showing decline.

Therefore, the US dollar could face challenges despite its recent strength, as Federal Reserve officials hint at holding off on interest rate hikes despite improving Treasury yields. The unexpected drop in the ISM Manufacturing PMI may add to these pressures, impacting the USD and influencing the AUD/USD pair.

AUD/USD Price Chart - Source: Tradingview
AUD/USD Price Chart - Source: Tradingview

AUD/USD - Technical Analysis

The AUD/USD pair is currently trading at $0.66671, reflecting a decline of 0.28% in the 4-hour timeframe. The pivot point at $0.6680 is crucial, serving as a benchmark for potential price movements.

Immediate resistance levels are identified at $0.6709, $0.6735, and $0.6755. These levels indicate where the pair might face upward barriers.

On the support side, immediate support is at $0.6640, followed by $0.6616 and $0.6591. The 50-day Exponential Moving Average (EMA) is positioned at $0.6641, suggesting a near-term support level that traders should monitor closely.

The Relative Strength Index (RSI) is at 54, indicating a neutral market sentiment with a slight leaning towards bullishness.

The current technical setup suggests that the AUD/USD pair might continue to face downward pressure if it fails to break above the pivot point of $0.6680. Given the alignment of the 50 EMA close to the current price, a failure to hold above this level could result in further declines.

The recommended strategy under these conditions is to sell below $0.6680, targeting a take-profit level at $0.6640, with a stop loss at $0.6710.

In conclusion, the outlook for AUD/USD remains bearish below $0.6680. Immediate resistance levels at $0.6709, $0.6735, and $0.6755 could cap any potential upward movements.

On the downside, immediate support at $0.6640 and further levels at $0.6616 and $0.6591 should be monitored closely for signs of continued bearish momentum.

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