- The AUD/USD pair extended its gains following the disappointing US S&P global PMI, suggesting the possibility of Fed easing.
- The U.S. dollar has weakened as U.S. Treasury yields have fallen and stock markets have reacted positively to a possible change in Fed policy.
- Upcoming Australian CPI data may influence the Reserve Bank of Australia’s policy stance.
The Australian dollar recorded its second consecutive positive day against the US dollar, gaining more than 0.59% on Tuesday as the US S&P Purchasing Managers’ Index (PMI) for April was weaker than expected. That prompted speculation that the Fed could put rate cuts back on the table after last week’s hawkish comments. AUD/USD is trading at 0.6488, up 0.01% at the start of Asian trading on Wednesday.
Australian dollar takes advantage of softer US PMI as Fed rate cut expectations rise
S&P Global revealed that U.S. manufacturing activity contracted slightly to 49.9% from 51.9% in March. Although the services sector and composite PMI maintain their expansion areas, both fell from 51.7 to 50.9 and from 52.1 to 50.9.
The data sent U.S. stocks higher, Treasury yields lower and the U.S. dollar posting losses. The dollar index (DXY) against six other currencies fell by 0.44% and stood at 105.68.
AUD/USD rose from the day’s low near 0.6440 seconds to the day’s high of 0.6490.
Other data showed new home sales reached a six-month high, indicating strong demand in the housing market. However, building permits continued to contract, albeit with slight improvement, with the initial -4.3% decline revised to -3.7%.
For Australia, the Consumer Price Index (CPI) is expected to decline slightly year-on-year from 4.1% to 3.4% in the first quarter. On a quarterly basis, it is expected to rise from 0.6% to 0.8%, while the monthly figure is expected to remain unchanged at 3.4%.
Analysts at ANZ said the Reserve Bank of Australia was unlikely to change its stance, saying: “Looking ahead to the next RBA board decision on May 7, inflation is likely to be slightly higher than the RBA expects. I don’t think it will encourage a change.” There is a clear tightening bias. ”
AUD/USD Price Analysis: Technical Outlook
From a technical perspective, the AUD/USD pair has turned bullish in the short term following the formation of the Morning Star chart pattern, but there are downside risks. Buyers need to clear the 0.6500 hurdle and the 0.6527/32 confluence of the 50-day moving average and 200-day moving average (DMA) to form a “death cross”. If this clears, the rise will expand to 0.6600. On the other hand, a reversal and a daily close below 0.6440 could pave the way for a retest of the year-to-date (year-to-date) low of 0.6362.
