Technical Analysis

AUD/USD Price Analysis – May 14, 2024

By LonghornFX Technical Analysis
May 14, 20244 min

Daily Price Outlook

During the European trading session, the AUD/USD currency pair struggled to gain positive traction and remained around the 0.6610 level, reaching an intraday low of 0.6598. The downward trend could be attributed to several factors, including a strengthening US dollar and risk-off market sentiment.

Additionally, the RBA's less hawkish stance has contributed to undermining the AUD/USD pair. Furthermore, previously released weak business conditions and low confidence indicate a slowing economy, which has dampened investor optimism about Australia's economic outlook and further weakened the AUD/USD pair.

Impact of RBA Decision and Economic Factors on AUD/USD Pair

On the AUD front, the losses in the AUD/USD pair were further bolstered following the Reserve Bank of Australia's decision to maintain interest rates at 0.35% last week, which dampened expectations for a more aggressive monetary policy stance despite stronger inflation data.

On the data front, the National Australia Bank's Business Conditions index declined to 7 in April from the previous 9, while Business Confidence remained unchanged at 1. Australia's Treasury predicts that inflation will return to the RBA's target range by late 2024, consistent with earlier forecasts.

However, the Commonwealth Bank of Australia (CBA) adjusted its AUD forecast for the end of 2024 downwards to 0.69 due to factors such as the interest rate differential and the high yields on US Treasury bonds, which bolster the US Dollar.

Hence, the AUD/USD pair declined due to the RBA's neutral stance, steady rates, weak business conditions, and CBA's lowered AUD forecast, reflecting challenges against a stronger USD.

Impact of US Dollar Strength and Economic Indicators on AUD/USD Pair

On the US front, the US Dollar strengthened as Federal Reserve officials stressed the importance of maintaining higher interest rates due to ongoing worries about inflation. Fed Vice Chair Philip Jefferson's comments on Monday supported this stance, suggesting that rates should remain unchanged until signs of inflation moderating appear.

Investors are anticipating Tuesday's Producer Price Index (PPI) report, which is a significant economic gauge. If it indicates increased inflationary pressures, it could bolster the US Dollar. Additionally, a survey by the Federal Reserve Bank of New York revealed a rise in one-year inflation expectations to 3.3%, further highlighting concerns about inflation.

Neel Kashkari, President of the Minneapolis Federal Reserve, cautioned against tightening monetary policy too quickly, suggesting that despite certain thresholds being met, another rate hike is possible. Meanwhile, San Francisco Fed President Mary Daly emphasized the necessity of maintaining a prolonged restrictive policy to reach the Fed's inflation targets.

On the data front, the University of Michigan Consumer Sentiment Index fell to 67.4 in May, its lowest level in six months, below the expected 76 reading. Additionally, the UoM 5-year Consumer Inflation Expectation increased to 3.1%, reaching a six-month high compared to the previous 3.0%.

Therefore, the US Dollar's strength, supported by Fed officials' stance on interest rates and inflation concerns, coupled with weaker consumer sentiment data, may further pressure the AUD/USD pair amid heightened demand for the USD as a safer currency.

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

AUD/USD - Technical Analysis

The AUD/USD pair is trading at $0.66072, down 0.10% in the latest session. The 4-hour chart highlights a pivot point at $0.6647, which serves as a critical level for traders. Immediate resistance is found at the pivot point, followed by subsequent resistance levels at $0.6691 and $0.6727. On the downside, immediate support is observed at $0.6559, with further support at $0.6517 and $0.6467.

The technical indicators provide additional context for the current market conditions. The Relative Strength Index (RSI) is at 53, indicating a slightly bullish sentiment but not yet in overbought territory.

The 50-day Exponential Moving Average (EMA) is positioned at $0.6596, acting as a dynamic support level slightly below the current price, which can provide a buffer against further declines.

Based on the technical setup, the strategy suggests an entry price for buying above $0.66014, with a take-profit target at $0.66469 and a stop loss at $0.65713. This approach takes into account the potential for upward movement while managing risk effectively with the stop loss placed just below the recent support level.

A break above the pivot point at $0.6647 could indicate further bullish momentum, propelling prices towards the next resistance levels of $0.6691 and $0.6727.

Conversely, if the price falls below immediate support at $0.6559, the next support levels at $0.6517 and $0.6467 will be crucial to watch for potential stabilization.

Overall, the outlook for AUD/USD remains cautiously optimistic above the entry price of $0.66014.

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