AUD/USD Forecast: More gains likely while above 0.6550

AUD/USD Current Price: 0.6575

• The Aussie gained as risk sentiment improved and commodity prices recovered.
• The US dollar is under pressure amid rising expectations of a pause at the next FOMC meeting.
• The AUD/USD reversed sharply from six-month lows, offering signs that it has established a bottom.

The AUD/USD rose sharply on Thursday, reversing the decline from the lowest level seen in six months, which was hit on Wednesday at 0.6457. The pair jumped to the 0.6580 area and held onto most of its gains. The key driver of the AUD/USD rally was a selloff in the US dollar following the release of US data, as market participants began to reevaluate the odds of a rate cut from the Federal Reserve by year-end

Data released in Australia showed that the S&P Global Manufacturing PMI for May was revised upwards from the preliminary reading of 48 to 48.4. Private capital expenditure during the first quarter rose by 2.4%, surpassing expectations of 0%. Another positive factor for the Aussie was the Chinese Caixin Manufacturing PMI, which rose from 49.5 to 50.9. These numbers helped to improve market sentiment. Later in the day, following US economic data releases, equity prices on Wall Street rallied, further boosting the AUD/USD.

On Friday, Australia will report on April Home Loans. The focus will also be on the announcement from the Fair Work Commission (FWC) of the Annual Wage Review. Analysts expect an increase in the nominal national minimum wage of around 7%. A significant increase in the nominal national minimum wage, as expected by analysts, could add pressure to the Reserve Bank of Australia (RBA), particularly considering the potential impact of large wage increases on the inflation outlook. 

The key report on Friday will be the US Nonfarm Payrolls. On Thursday, the ADP report surpassed expectations, triggering a brief recovery of the US dollar, which resumed its decline after the release of Unit Labor Cost data. A very positive NFP report would be needed to alter the current trend in Fed rate expectations. The debt ceiling could be voted on in the Senate on Friday night and is expected to pass.

AUD/USD short-term technical outlook

The AUD/USD rose sharply, turning positive for the week, and rebounded from the lowest level in six months to reach a one-week high. The rally signals the potential for a bottom in the short term, and changes the outlook for the next sessions to positive for the Aussie.

After a rally of almost 100 pips and the best performance in a month, some consolidation and a modest correction seem likely before another leg higher. On the upside, the immediate resistance is at the 0.6580 area. A break higher would likely lead to a test of the next area at 0.6605, with the next target at 0.6620, followed by 0.6645. 

Further gains seem likely as long as the AUD/USD remains above the 0.6550 support area. Below that, the next support level stands at 0.6520. A slide under 0.6480 would increase bearish pressure, suggesting another test of the 0.6450/55 area.

Support levels: 0.6545 0.6495 0.6465 

Resistance levels: 0.6580 0.6605 0.6645 

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