- Improvement in market sentiment benefits the Australian dollar.
- Despite better than expected US economic data, the greenback remains trading softer.
- Fed’s Bullard: The US central bank base case is 50-bps increases at upcoming meetings.
- AUD/USD Price Forecast: Remains downward biased, despite the 200-pip rally from YTD lows at around 0.6820s.
The Australian dollar marches forward but faces solid resistance around the 0.7040-50 area and retreats towards the 0.7010s, amidst a positive market sentiment session that weighed on the greenback, which remains soft on Tuesday, despite higher US Treasury yields. At the time of writing, the AUD/USD is trading at 0.7022.
Sentiment improves as China begins to control Shanghai Covid-19 crisis
Global equities remain on the right foot, trading in the green, while in the FX space, risk-sensitive currencies rise, while safe-haven peers are getting smashed by the improvement in the market sentiment, courtesy of progress in the Covid-19 crisis in China. That benefits the Aussie dollar, which remains buoyant in the session, as the Reserve Bank of Australia (RBA) last meeting minutes showed that the board discussed a 40-bps increase in its meeting, and at the same time, members agreed that further hikes would likely be required to ensure that inflation returns to its target.
Following the minutes, the AUD/USD jumped near the 0.7000 mark, but traders lifted the major until the European session, at the mid-point, between the R1 and R2 daily pivots, lying at 0.7010 and 0.7050, respectively.
US Retail Sales and Industrial Production came positive, as Fed speakers cross wires
Data-wise, the US docket featured Retail Sales for April, which came at 0.9% m/m, in line with estimations. However, the annual base reading rose by 8.2%, crushing the 4.2% expectations, illustrating the resilience of consumers in the US. Moreover, Industrial Production also printed positive numbers, beating monthly and yearly forecasts, further cementing the case of the Federal Reserve tightening monetary policy at the pace that began a couple of weeks ago.
Elsewhere, Fed speakers would dominate the headlines throughout the day. St. Louis Fed President James Bullard said that the continued strong growth trend for the US economy is the base case outlook for the next 18 months and added that household consumption is expected to hold up well through this year. He emphasized that the base case scenario for the Fed is 50-bps rate hikes at upcoming Fed meetings.
Later in the day, Minnesota Fed President Neik Kashkari said that the Fed has indicated it will get rates to at least neutral by the end of 2022. He added that the Fed needs to bring inflation down to its 2% target before a wage-price spiral takes off and stated that he does not know if Fed’s actions would trigger a recession.
In the week ahead, the Australian docket would feature the Wage Price Index on its quarterly and annual readings, expected at 0.8% and 2.5%, respectively. Meanwhile, the US docker would feature Building Permits and additional Fed speaking, led by Philadelphia Fed President Patrick Harker.
AUD/USD Price Forecast: Technical outlook
The AUD/USD remains downward pressured, despite rallying from 0.6828 to 0.7040. As of writing, the Relative Strenght Index (RSI) is at 42.50, aiming higher, but remains in negative territory. Based on Tuesday’s price action, unless AUD/USD bulls lift prices above 0.7051, the major would be vulnerable to additional selling pressure.
If AUD/USD bulls achieve the above-mentioned, the pair’s first resistance would be 0.71000, followed by March 15 daily low-turned-resistance at 0.7165 and then 0.7200. However, if that scenario does not play out, the major’s first support would be 0.7000, followed by the January 28 daily low at 0.6967 and the YTD low at 0.6828.
|Today last price||0.7022|
|Today Daily Change||0.0051|
|Today Daily Change %||0.73|
|Today daily open||0.6971|
|Previous Daily High||0.6983|
|Previous Daily Low||0.6872|
|Previous Weekly High||0.7074|
|Previous Weekly Low||0.6828|
|Previous Monthly High||0.7662|
|Previous Monthly Low||0.7054|
|Daily Fibonacci 38.2%||0.6941|
|Daily Fibonacci 61.8%||0.6915|
|Daily Pivot Point S1||0.6901|
|Daily Pivot Point S2||0.6832|
|Daily Pivot Point S3||0.6791|
|Daily Pivot Point R1||0.7012|
|Daily Pivot Point R2||0.7053|
|Daily Pivot Point R3||0.7122|
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