AUD/USD Outlook: Seems vulnerable amid hawkish Fed-inspired sustained USD buying

• AUD/USD dives to a fresh YTD low on Tuesday and is pressured by a combination of factors.
• The mixed Chinese macro data and geopolitical tensions undermine the risk-sensitive Aussie.
• Reduced Fed rate cut bets continue to boost the USD and contribute to the ongoing decline.

The AUD/USD pair prolongs its recent sharp retracement slide from the vicinity of mid-0.6600s, or the monthly peak and drifts lower for the third successive day on Tuesday. This also marks the fourth day of a negative move and drags spot prices to the 0.6400 neighborhood, or the lowest level since November 14. Against the backdrop of persistent geopolitical risks stemming from the ongoing conflicts in the Middle East, mixed Chinese economic data turns out to be a key factor weighing on the Australian Dollar (AUD). Apart from this, sustained US Dollar (USD) buying, bolstered by hawkish Federal Reserve (Fed) expectations, contributes to the heavily offered tone surrounding the pair. 

According to the official data published by the National Bureau of Statistics, China’s economy grew 5.3% over the year in the first quarter of 2024 against the 5.2% rise in the final quarter of 2023 and market consensus for a reading of 5%. This, however, was offset by rather unimpressive Retail Sales and Industrial Production, which increased by 3.1% and 4.5% YoY respectively, both missing market estimates. Nevertheless, the data suggested that the growth momentum in the world's second-largest economy may already be slowing after a strong start to the year, which, along with a generally weaker risk tone and an extension of the recent USD bullish run, exert pressure on the AUD/USD pair. 

The market sentiment remains fragile on the back of the worsening Middle East crisis, especially after Iran's attack on Israel over the weekend, and speculations that the Fed will keep interest rates higher for longer. In fact, investors have been pushing back their expectations about the timing of the first interest rate cut by the US central bank to September from June amid sticky inflation and a resilient US economy. The bets were reinforced by US Retail Sales data released on Monday, which rose by 0.7% in March as compared to the 0.3% increase estimated and the previous month's upwardly revised growth of 0.9%. The strong consumer spending could underpin inflation in the coming months. 

Meanwhile, growing acceptance that the Fed will delay cutting interest rates remains supportive of elevated US Treasury bond yields and continues to act as a tailwind for the Greenback. This, in turn, suggests that the path of least resistance for the AUD/USD pair is to the downside and supports prospects for deeper losses. Traders now look to the US economic docket, featuring the release of Housing Starts, Building Permits and Industrial Production figures. This, along with speeches by influential FOMC members, including Fed Chair Jerome Powell, should provide some impetus. 

Technical Outlook

From a technical perspective, last week's breakdown through the 0.6480 horizontal support and the overnight slide below the 0.6450 level could be seen as fresh triggers for bearish traders. Moreover, oscillators on the daily chart are holding deep in the negative territory and are still away from being in the oversold territory, validating the near-term negative outlook for the AUD/USD pair. Some follow-through selling below the 0.6400 mark will reaffirm the bearish bias and drag spot prices further below the 0.6375 intermediate support, towards the November 2023 swing low, around the 0.6340-0.6335 region. 

On the flip side, any recovery attempt beyond mid-0.6400s might now confront a stiff hurdle near the 0.6480 support breakpoint. This is closely followed by the 0.6500 psychological mark, which if cleared decisively might trigger a short-covering rally and lift the AUD/USD pair to the next relevant resistance near the 0.6535-0.6540 region. The momentum could extend further towards the 0.6580-0.6585 zone en route to the 0.6600 round figure and the monthly peak near the 0.6640-0.6645 area.