On Friday, during European trading, the Australian dollar was down about 0.8% against the US dollar, trading around 0.7160. The Australian currency is experiencing strong selling pressure as the US dollar benefits from a significant increase in US bond yields.
As of this writing, the US Dollar Index (DXY), which measures the value of the US dollar against a basket of six major currencies, rose by 0.3% to around 99.20, marking its highest point in more than two weeks. The yield on the 10-year U.S. Treasury rose 1.6% to approximately 4.53%, the highest it’s been in nearly a year.
The rise in U.S. Treasury yields has come as traders are factoring in the chance of a Federal Reserve rate cut this year due to accelerating inflationary pressures from rising energy prices.
Additionally, positive remarks from officials in Washington and Beijing regarding bilateral trade prospects, following a meeting between President Trump and Chinese President Xi Jinping, have further strengthened the US dollar.
This situation could bode well for the Australian dollar, primarily because Australia heavily relies on exports to China.
AUD/USD Technical Analysis
The AUD/USD pair has notably dropped to around 0.7161 and is currently just under the 20-day exponential moving average (EMA) of 0.7184. It hasn’t managed to break through this dynamic barrier, keeping the short-term trend somewhat bearish. The Relative Strength Index (RSI) has plummeted to near 49, indicating that upward momentum is waning rather than expanding.
For potential buyers, the 20-day EMA of 0.7184 will be the initial target. A daily close over this level could relieve some immediate downward pressure and open the door for a recovery toward the nearly four-year high of 0.7277. Conversely, if the decline continues, it could move toward the April 29 low of 0.7100.
