AUD/USD pauses after reaching a six-month high

AUD/USD pair reaches 0.6537 at the start of the week’s session, a level last seen on November 25, 2024.
AUD/USD braces for volatility with US Durable Goods and Consumer Confidence Data.
AUD/USD retreats from six-month high but remains steady with resistance firming at 0.6500.

Tammy Da Costa, CFTe®FXStreet

The Australian Dollar (AUD) is consolidating within a narrow range against the US Dollar (USD) after reaching a six-month high early Monday. However, the pair retreated from the highs ahead of Tuesday’s key economic data.

Recent broad-based weakness in the US Dollar has supported demand for risk-sensitive currencies, allowing AUD/USD to build on its monthly gains. The pair remains resilient, hovering just below the key psychological resistance level at 0.6500.

At the time of writing, AUD/USD is trading near 0.6488, after briefly reaching a six-month high of 0.6537 during the early hours of Monday’s session.

AUD/USD rally stalls as markets await US data and trade updates

Over the past two months, the Australian Dollar (AUD) has staged an impressive recovery against the US Dollar (USD), rebounding from a low of 0.5914 on April 9 to test a six-month high of 0.6537 earlier on Monday.

The rally has been driven in part by sustained USD weakness and improving sentiment toward risk-sensitive currencies.

Despite the bullish momentum, AUD/USD struggled to gain a firm foothold above the psychological 0.6500 level, with thin trading conditions prevailing as US markets remained closed for Memorial Day.

The announcement of a temporary delay in US tariffs on European imports also offered modest support for the Greenback, easing some immediate concerns around escalating trade tensions.

As AUD/USD braces for the return of US market liquidity, attention now shifts to high-impact economic data and fresh trade developments.

AUD/USD awaits Durable Goods and Consumer Confidence data

On Tuesday, the spotlight turns to the US Census Bureau’s Durable Goods Orders report for April. This indicator tracks new orders placed with US manufacturers for long-lasting goods and offers a gauge of industrial activity.

Following a robust 9.2% increase in March, markets are bracing for a sharp reversal, with forecasts pointing to an 8% contraction, reflecting potential fallout from trade-related disruptions.

Later in the day, at 14:00 GMT, the Conference Board will publish its Consumer Confidence Index for May. After plunging to a post-pandemic low of 86.0 in April, the upcoming print will provide further insight into US households' economic outlook amid mounting fiscal and geopolitical uncertainties.

These data releases will set the tone for the AUD/USD in the short term, particularly ahead of Wednesday’s release of Australia’s Monthly Consumer Price Index (CPI) for April.

Markets expect the annual inflation rate to ease slightly to 2.3% from 2.4%, reinforcing expectations that the Reserve Bank of Australia (RBA) may remain on hold in the near term.

With monetary policy divergence continuing to influence market positioning, traders will be closely watching for signs of shifting sentiment as economic data, inflation readings, and trade headlines dictate direction.

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

Author

Tammy Da Costa, CFTe®

FXStreet

Tammy is an economist and market analyst with a deep passion for financial markets, particularly commodities and geopolitics.

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