Technical Analysis

AUD/USD Price Analysis – May 23, 2024

By LonghornFX Technical Analysis
May 23, 20244 min

Daily Price Outlook

Despite a bullish US dollar and a drop in consumer inflation expectations, the AUD/USD currency pair maintained its upward rally, remaining well-bid around the 0.6623 level and hitting an intra-day high of 0.6633. The reason for its bullish rally can be attributed to the risk-on market sentiment, the Reserve Bank of Australia's (RBA) decision to maintain a steady policy, and the acknowledgment of increased inflation risks.

Conversely, the bullish US dollar, driven by the hawkish Federal Reserve stance, was a key factor that limited additional gains in the AUD/USD pair. Another factor capping gains in the AUD/USD pair was the drop in consumer inflation expectations. The Consumer Inflation Expectation, released by the Melbourne Institute, showed consumer expectations

Impact on AUD/USD Pair Amid Economic Signals & Policy Decisions

The RBA meeting minutes from May 2024 revealed that the board considered raising interest rates but decided to keep them steady as policymakers found it difficult to predict future changes in the cash rate and noted that recent data increased the risk of inflation staying above the target for a longer period.

On the data front, consumer inflation expectations in Australia dropped to 4.1% in May from 4.6% in April, the lowest since October 2021. Meanwhile, the private sector grew for the fourth month in a row, with the Composite PMI dipping to 52.6 from 53.0 in April, driven by the services sector, though manufacturing remained weak with a PMI of 49.6.

Whereas, the ASX 200 Index fell below 7,800, hit by declining mining and energy stocks due to lower commodity prices, and weak performance on Wall Street after FOMC meeting minutes raised concerns about slow progress on inflation.

Therefore, the mixed economic signals and concerns about inflation likely put pressure on the AUD/USD pair, causing potential fluctuations. The decision to maintain steady interest rates, weak manufacturing data, and a decline in the ASX 200 could lead to AUD weakening.

Impact on AUD/USD Pair Amid Strong Dollar and Fed Caution

On the US front, the US dollar remains strong after the latest FOMC meeting minutes highlighted ongoing concerns about persistent inflation. Fed policymakers are hesitant to cut interest rates, expecting it to take longer for inflation to improve. The CME FedWatch Tool shows the probability of a 25 basis-point rate cut in September has slightly decreased to 50.7% from 51.6%.

Federal Reserve officials, including Boston President Susan Collins and Governor Christopher Waller, emphasized the need for patience and more favorable inflation data before considering easing policies.

Therefore, the strong Dollar and cautious stance of the Fed could lead to downward pressure on the AUD/USD pair, causing the Australian Dollar to weaken against the US Dollar.

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

AUD/USD - Technical Analysis

The AUD/USD is currently trading at $0.66191, unchanged on the day. The 4-hour chart highlights a pivot point at $0.66340. Immediate resistance levels are identified at $0.66531, $0.66822, and $0.67110, while immediate support levels are $0.66091, $0.65856, and $0.65589.

The Relative Strength Index (RSI) is at 33, indicating the pair is nearing oversold territory. This suggests potential for a short-term bounce, yet the broader trend remains bearish. The 50-day Exponential Moving Average (EMA) at $0.66634 acts as a significant resistance level, reinforcing the bearish outlook as long as the price remains below this mark.

Technically, the AUD/USD shows a weak bias as it hovers around the pivot point. The recommendation is to enter a sell position below $0.66336, targeting a take-profit level of $0.65970 with a stop loss at $0.66585. This setup leverages the potential continuation of the bearish trend while managing risk effectively.

Despite the neutral price movement today, the overall sentiment remains bearish given the proximity to the 50-day EMA and the current RSI level. If the AUD/USD breaks below the immediate support at $0.66091, further declines towards $0.65856 and $0.65589 are likely. Conversely, a move above the pivot point of $0.66340 could test the resistance levels at $0.66531 and $0.66822.

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