Technical Analysis

AUD/USD Price Analysis – May 09, 2024

By LonghornFX Technical Analysis
May 9, 20244 min

Daily Price Outlook

During the European trading session, the AUD/USD currency pair continued its losing streak, remaining well-offered around the 0.6577 level and hitting an intra-day low of 0.6565. The losses were driven by the less hawkish stance of the RBA, which tended to undermine the Australian currency and contributed to the weakness of the AUD/USD pair. Additionally, previously released downbeat Australian Retail Sales data was seen as another key factor keeping the pair down.

Moreover, the risk-off market sentiment triggered by ongoing tensions in the Middle East played a major role in keeping the AUD/USD pair down by undermining the riskier Australian dollar. Conversely, the bullish US dollar, supported by the hawkish Fed stance regarding interest rates, put downward pressure on the AUD/USD pair.

RBA's Dovish Stance and Weaker Retail Sales Weigh on AUD/USD Pair

On the AUD front, the Reserve Bank of Australia (RBA) adopted a cautious approach, even though recent inflation data had exceeded expectations. The RBA kept the interest rate unchanged at 4.35%, taking a wait-and-see stance. Despite the increase in March's inflation rate, RBA Governor Michele Bullock remains cautious, noting the ongoing risks associated with inflation.

She believes that the current interest rates are appropriate to bring inflation back to the 2-3% target range by the second half of 2025. However, Societe Generale expressed concerns, anticipating a potential slowdown in Australian economic growth. They predict downside risks, citing the impact of RBA rate hikes on the economy.

On the data front, Australian Retail Sales fell by 0.4% in the first quarter of 2024, reversing the 0.4% growth seen in the previous quarter, indicating a decline in consumer spending. Meanwhile, the ASX 200 Index ended its five-day winning streak, largely due to a drop in bank stocks caused by regulatory issues. This decline was also influenced by a downturn in the U.S. markets, where investors were unsettled by mixed corporate earnings and the Federal Reserve's plans to maintain higher interest rates for a longer period. These factors contribute to a more cautious market environment in Australia.

Consequently, the RBA's cautious stance and concerns about economic growth, along with weaker retail sales data and market uncertainty, may put downward pressure on the AUD/USD pair, leading to a decline in its value.

Fed's Extended Higher Interest Rates Strengthen US Dollar, Weakening AUD/USD Pair

On the US front, the US Dollar has strengthened as the Federal Reserve (Fed) is expected to maintain higher interest rates for an extended period, pushing up US Treasury yields and supporting the US Dollar. This expectation is fueled by statements from influential Fed officials like Susan Collins from Boston, who said it could take longer to reduce inflation to the target of 2%. Similarly, New York's John Williams and Minneapolis's Neel Kashkari have noted that interest rates might remain elevated for an extended time.

Therefore, the US Dollar's strength due to the Fed's extended higher interest rates and rising US Treasury yields is likely to put downward pressure on the AUD/USD pair, leading to a weaker Australian dollar.

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

AUD/USD - Technical Analysis

The Australian Dollar (AUD/USD) is experiencing slight downward pressure today, trading at $0.65802, a decrease of 0.01%. The currency pair is currently navigating just above a critical 50-Day Exponential Moving Average (EMA) positioned at $0.6564. This level is noteworthy as it has recently served as a baseline for the pair’s support, suggesting that the AUD/USD could find stability and potentially rebound from these levels.

Looking at the technical framework, the pivot point is set at $0.6612. Immediate resistance lies slightly lower at $0.6602, which the pair needs to overcome to aim for higher resistance levels at $0.6647 and $0.6691. On the downside, the immediate support is significantly lower at $0.6504, indicating a potential area where buying interest might resurface. Additional supports are identified at $0.6467, which is notably listed twice, suggesting a strong support zone that could be critical in preventing further declines.

The Relative Strength Index (RSI) of 49 indicates a nearly balanced market dynamic, with neither overbought nor oversold conditions present, providing room for both upside and downside movements. Based on the current market setup and the proximity of the price to the 50 EMA, a cautious buying strategy could be considered. Entering a long position above $0.65623 with a target of $0.66121 and a stop loss at $0.65322 offers a structured approach to capitalize on potential upward movements while managing risk effectively.

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