Technical Analysis

AUD/USD Price Analysis – May 16, 2024

By LonghornFX Technical Analysis
May 16, 20244 min

Daily Price Outlook

Despite the bearish US dollar, the AUDUSD currency pair was unable to extend its upward rally and edged lower around 0.6671, hitting the intraday low of 0.6669 level. However, the reason for its downward trend can be attributed to the dovish sentiment surrounding RBA’s policy stance, which undermined the AUD currency and contributed to the AUD/USD pair losses.

Moreover, the bearish US dollar, triggered by the release of the latest Consumer Price Index (CPI) report, was seen as one of the key factors that helped the AUD/USD pair to limit its deeper losses. In contrast to this, the losses in the AUD/USD pair could be short-lived as the risk-on market sentiment tends to underpin the riskier Australian dollar.

Impact of US Economic Data on AUD/USD Pair

The global market sentiment has been gaining positive momentum, buoyed by the recent release of lower-than-expected monthly Consumer Price Index and Retail Sales data in the United States (US). This has increased the likelihood of multiple rate cuts by the Federal Reserve (Fed) in 2024, which has in turn undermined the US Dollar (USD). The upbeat market sentiment and bearish US dollar both contribute to helping the AUD/USD pair regained its lost traction.

On the data front, the US Consumer Price Index (CPI) for April showed a slower rise of 0.3% from the previous month, below the expected 0.4%. Retail Sales remained flat, missing the anticipated 0.4% increase. The Producer Price Index (PPI) saw a stronger uptick of 0.5% compared to March's -0.1% decline, surpassing expectations. Core PPI, excluding food and energy prices, also rose by 0.5%, exceeding forecasts of 0.2%.

Therefore, the positive global market sentiment and weakening US dollar, fueled by lower-than-expected US economic data, helped the AUD/USD pair regain lost ground.

Negative Impact on AUD due to Cautious RBA Outlook and Mixed Employment Data

On the negative side, the Australian Dollar (AUD) lost ground recently due to a more cautious outlook from the Reserve Bank of Australia (RBA) about its monetary policies. This shift followed mixed employment data and slightly lower-than-expected wage increases in the first quarter, which contributed to a decrease in Australia’s 10-year government bond yield to around 4.2%. These factors create a dovish sentiment, putting pressure on the AUD/USD pair and ending its three-day winning streak.

On the data front, the Australian Bureau of Statistics reported that in April, the number of employed people in Australia increased by 38.5 thousand to reach 14.3 million, surpassing market expectations of 23.7 thousand and reversing a slight decline seen in March. However, the unemployment rate also rose to 4.1% from the previous 3.9%, marking the highest rate since January. This increase meant 30.3 thousand more individuals were unemployed, bringing the total to 604.2 thousand.

Therefore, the mixed data, with stronger employment figures but a higher unemployment rate, added to the cautious RBA stance, weighing on the AUD/USD pair and ending its recent gains.

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

AUD/USD - Technical Analysis

AUD/USD is currently trading at $0.66823, down 0.14% from the previous session. The pivot point is situated at $0.6714. Immediate resistance levels are at $0.6734, $0.6759, and $0.6779.

On the downside, immediate support levels are at $0.6649, $0.6614, and $0.6579. These levels are critical for traders as they indicate potential points of breakout or breakdown, guiding trading decisions.

The Relative Strength Index (RSI) is currently at 66, suggesting that the market is approaching overbought conditions. This could imply that a bearish correction is likely if buying pressure diminishes. The 50-day Exponential Moving Average (EMA) is at $0.6616, which supports the medium-term bullish trend.

Given these technical indicators, a strategic trading approach is advisable. Selling below the pivot point of $0.67126 could be beneficial, targeting a take-profit level of $0.66483 and setting a stop-loss at $0.67500.

This strategy hinges on the expectation that if AUD/USD fails to surpass the immediate resistance level, it may correct downward toward the support levels.

The RSI nearing overbought territory suggests that the current downward trend might continue if resistance levels hold. A failure to breach the resistance at $0.6734 could result in a pullback toward the support at $0.6649 or even lower.

Traders should remain vigilant for any shifts in market sentiment that could alter the trading landscape.

In summary, while AUD/USD is currently experiencing downward pressure, technical indicators suggest the possibility of further bearish movement. A strategic approach would be to sell below $0.67126 with a take-profit target at $0.66483 and a stop-loss at $0.67500.

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