Australian Dollar appreciates despite lower GDP Q1 – FXStreet

• The Australian dollar rose on Wednesday on a risk-on mood.
• Australia’s first-quarter GDP grew 0.1% from the previous quarter, below expectations of 0.2%.
• Caixin China Services PMI rose to 54.0 in May, marking the 17th consecutive month of expansion in services activity.
• The US dollar could rebound due to rising US Treasury yields.

The Australian Dollar (AUD) strengthened on Wednesday, likely due to improved risk sentiment. The AUD’s gains may be limited due to weaker than expected GDP data (1Q growth of 0.1% QoQ versus 0.2% growth expected). On an annualized basis, the economy grew 1.1%, slightly below the 1.2% forecast. The AUD/USD pair came under pressure after the Judau Bank Purchasing Managers’ Index (PMI) for May came in at 52.5, below expectations of 53.1.

Reserve Bank of Australia (RBA) Governor Michelle Bullock said on Wednesday that she expects first-quarter GDP growth to be very slow. She also stressed that the central bank is ready to take action if the Consumer Price Index (CPI) does not return to its target range, NCA NewsWire reported.

The US Dollar (USD) may rebound due to an upward correction in US Treasury yields. The US Dollar has fallen due to rising speculation that the Federal Reserve (Fed) will cut interest rates this year. Investors are awaiting key US data releases, including the US ADP payroll growth rate and the ISM services PMI report, due for release later on Wednesday.

Daily Digest Market Trends: Australian dollar strengthens despite slowing economic growth

• The Judau Bank Composite PMI came in at 52.1 in May, down slightly from 53.0 in April, indicating that Australia’s private sector output continued to grow for the fourth consecutive month, albeit at a slower rate.
• The Caixin China Services PMI came in at 54.0 in May, beating the expected 52.6 and the previous reading of 52.5, marking the 17th consecutive month of expansion in services activity and the fastest pace since July 2023. Changes in the Chinese economy could have an impact on the Australian market as the two countries are close trading partners.
• JOLTS U.S. job openings fell by 296,000 to 8.059 million in April, down from 8.355 million in March and the lowest level since February 2021. The figure was also below the market consensus of 8.34 million, according to Tuesday’s data.
• Australia on Tuesday reported a first-quarter current account deficit of A$4.9 billion (US$3.2 billion), a sharp reversal from a downwardly revised A$2.7 billion surplus in the previous quarter. The result was below market expectations of a A$5.9 billion surplus.
• The ISM Manufacturing PMI unexpectedly fell to 48.7 in May, down from 49.2 in April and below the forecast of 49.6. U.S. manufacturing experienced its second consecutive month of contraction.
• Australia’s Judeau Bank manufacturing PMI, released on Monday, showed a slight increase to 49.7 in May from 49.6 in April, marking the fourth consecutive month of deterioration in manufacturing conditions.
• On Monday, the Caixin China Manufacturing PMI rose to 51.7 from 51.4 in April, marking the seventh consecutive month of expansion in factory activity and beating the forecast of 51.5. NBS PMI data on Friday showed manufacturing activity fell to 49.5 in May from 50.4 in April, missing the market consensus of an increase to 50.5. Meanwhile, the non-manufacturing PMI fell to 51.1 from the previous 51.2, missing the 51.5 forecast.
• Last week, Atlanta Fed President Raphael Bostic said in an interview with Fox Business that he doesn’t think further rate hikes are needed to hit the Fed’s 2% annual inflation target, and New York Fed President John Williams said inflation remains too high but should ease in the second half of 2024. Reuters reported that Williams doesn’t see any urgency in taking action on monetary policy.

Technical reasons why: Australian Dollar trades around 0.6650

The Australian Dollar is trading around 0.6650 on Wednesday. Daily chart analysis indicates a bullish trend as the AUD/USD pair remains stuck within an ascending wedge pattern. Moreover, the 14-day Relative Strength Index (RSI) is just above the 50 level, reinforcing this bullish trend.

The AUD/USD pair is likely to target the psychological level at 0.6700, followed by the four-month high at 0.6714 and the upper limit of the ascending wedge around 0.6750.

On the downside, the 21-day exponential moving average (EMA) at 0.6632 is the immediate support, followed by the lower limit of the ascending wedge and the psychological level at 0.6600. Any further declines can pressure the AUD/USD pair and push it down to the throwback support area at 0.6470.

AUD/USD: Daily Chart