AUD/USD Outlook: Break below 0.6500 could pave the way for deeper losses, US data in focus

• AUD/USD retreats sharply from a nearly three-week high and is pressured by a combination of factors.
• Dismal domestic data weighs heavily on the Australian Dollar amid mixed Chinese PMIs for April.
• A goodish pickup in the USD demand also contributes to the downfall ahead of the US macro data.
• The focus remains glued to the crucial FOMC policy decision and the NFP report due later this week. 

The AUD/USD pair comes under heavy selling pressure on Tuesday and snaps a six-day winning streak to the 0.6585 region, or a nearly three-week high touched the previous day. The Australian Dollar (AUD) weakens across the board in reaction to weaker domestic data, which showed that retail spending remained tepid amid a higher cost of living and dashed hopes for any further rate hike by the Reserve Bank of Australia (RBA). In fact, the Australian Bureau of Statistics (ABS) reported that Retail Sales fell 0.4% in March, marking a sharp reversal from the 0.3% increase in the previous month and missing estimates for a 0.2% rise. 

Meanwhile, the official Chinese PMI prints published by the National Bureau of Statistics (NBS) showed that the pace of growth in both the manufacturing and services sectors slowed in April. In contrast, a private survey showed that manufacturing activity expanded at the fastest pace in 14 months during the reported month, which could be seen as an encouraging sign for a robust recovery in the world's second-largest economy. The mixed data, however, does little to provide any respite to bulls or lend support to the AUD/USD pair amid a goodish pickup in the US Dollar (USD) demand, bolstered by hawkish Federal Reserve (Fed) expectations. 

The US Personal Consumption Expenditures (PCE) Price Index released on Friday pointed to still sticky inflation and reaffirmed bets that the Fed will begin its rate-cutting cycle only in September. This assists the USD in reversing a major part of the previous day's decline back closer to a two-week low touched on Friday and contributes to the heavily offered tone surrounding the AUD/USD pair. Moving ahead, traders now look to the US economic docket – featuring the Chicago PMI and the Conference Board's Consumer Confidence Index for some impetus. The focus, however, remains on the crucial two-day FOMC meeting starting this Tuesday.

Apart from this, the release of the closely-watched US monthly employment data – popularly known as the Nonfarm Payrolls (NFP) report – might provide fresh cues about the Fed's rate-cut path. This, in turn, will play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the AUD/USD pair. Nevertheless, the aforementioned fundamental backdrop favors the USD bulls and supports prospects for a further intraday depreciating move for the currency pair. 

Technical Outlook

From a technical perspective, the recent goodish recovery from the YTD low touched earlier this month faced rejection near the 100-day Simple Moving Average (SMA). The subsequent downfall could be seen as a fresh trigger for bears, though neutral oscillators on the daily chart warrant some caution. Hence, it will be prudent to wait for some follow-through selling below the 0.6500 psychological mark before positioning for deeper losses. The AUD/USD pair might then weaken further below 0.6480 horizontal support and challenge the 0.6400 mark before eventually dropping to the yearly low, around the 0.6365-0.6360 zone.

On the flip side, bulls need to wait for a sustained move and acceptance above the 100-day SMA, currently pegged near the 0.6585-0.6590 region. This is closely followed by the 0.6600 mark, above which the AUD/USD pair could climb back to the monthly peak, around the 0.6645 zone. The momentum could extend further towards reclaiming the 0.6700 round figure en route to the next relevant hurdle near the 0.6725 area.