Australian Dollar advances amid risk-on mood, light trading – FXStreet

• The Australian dollar strengthened on risk-advanced sentiment after the UoM’s five-year inflation expectations softened on Friday.
• The Australian share price rose above 7,770, following Wall Street’s gains from Friday.
• The US dollar weakened after the Gulf Coast University’s May 5-year consumer inflation expectations dropped to 3.0% from an expected 3.1%.

The Australian dollar (AUD) rose against the US dollar (USD) for a second consecutive session on Monday as risk appetite across markets improved despite fading expectations of a Federal Reserve (Fed) interest rate cut, while investors eagerly await the release of the monthly Australian Consumer Price Index on Wednesday for insights into the trajectory of domestic monetary policy.

The Australian dollar may strengthen after the Reserve Bank of Australia (RBA)’s latest meeting minutes said future changes in the cash rate were difficult to predict, but acknowledged that recent data makes it increasingly likely that inflation will remain above its 2-3% target for an extended period of time.

The US Dollar (USD) fell after the University of Michigan released its May 5-year consumer inflation expectations on Friday, slightly lower at 3.0%, below the expected 3.1%. The Consumer Sentiment Index was revised upward to 69.1 from a preliminary reading of 67.4, but still a 6-month low. These figures likely contributed to strengthening investor sentiment towards a possible interest rate cut by the Federal Reserve.

According to the CME FedWatch tool, the probability of the Federal Reserve cutting interest rates by 25 basis points in September has fallen to 44.9% from 49.0% a week ago. It should be noted that U.S. markets are closed on Monday for the Memorial Day bank holiday.

Daily Digest Market Trends: Australian dollar strengthens on improving risk sentiment

• The ASX 200 index rose above 7,770 on Monday with almost all sectors recovering from the previous week’s losses. Australian shares also tracked Wall Street’s gains on Friday as risk appetite improved.
• The U.S. Census Bureau released durable goods orders on Friday, showing a strong recovery in April, increasing 0.7% from the previous month, better than the previously expected 0.8% decline, although the March figure was revised down to 0.8% from an earlier estimate of 2.6%.
• On Thursday, Australian consumer inflation expectations showed future inflation over the next 12 months fell to 4.1% in May from 4.6% in April, the lowest level since October 2021.
• The S&P Global U.S. Composite PMI rose sharply to 54.4 in May, its highest level since April 2022. The services PMI rose to 54.8, the biggest output gain in a year, and the manufacturing PMI rose to 50.9.
• China has deployed large numbers of fighter jets to the Taiwan Strait and around islands it controls to conduct mock attacks, Reuters reported Thursday, citing Chinese state media. Geopolitical tensions in the region could affect Australian markets as China and Australia are close trading partners.

Technical reasons why: The Australian Dollar tests the 9-day EMA and then follows the critical level at 0.6650

The Australian Dollar is trading around 0.6630 on Monday. The 14-day Relative Strength Index (RSI) is just above the 50 level, indicating a bullish trend. Analysis of the daily chart shows that the AUD/USD pair is testing the lower limit of the ascending wedge. A move back into the wedge will suggest a strengthening of the bullish trend.

Immediate resistance is expected to be seen at the 9-day exponential moving average (EMA) at 0.6634 and the lower boundary of the ascending wedge. A break above this level could see the AUD/USD pair test the four-month high at 0.6714 and then the upper boundary of the ascending triangle at 0.6730.

On the downside, the psychological level at 0.6600 could act as a key support, followed by the major level at 0.6550. Any further decline could exert downward pressure on the AUD/USD pair towards the throw-back support area at 0.6470.

AUD/USD: Daily Chart