- AUD/USD bounces off a multi-day low touched on Friday amid a modest USD pullback.
- Economic woes and US debt ceiling concerns cap the upside for the risk-sensitive Aussie.
- Investors now look to the US Core PCE Price Index before placing fresh directional bets.
The AUD/USD pair stages a modest recovery from sub-0.6500 levels, or its lowest since November 2022 touched this Friday and sticks to its intraday gains through the first half of the European session. The pair is currently placed around the 0.6525-0.6530 region, up over 0.20% for the day, and for now, seems to have snapped a three-day losing streak.
The US Dollar (USD) bulls opt to take some profits off the table following the recent rally to over a two-month high and turn out to be a key factor lending some support to the AUD/USD pair. The downside for the USD, meanwhile, seems cushioned amid growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer to combat sticky inflation. Apart from this, the prevalent cautious mood could benefit the Greenback's relative safe-haven status and contribute to capping the upside for the risk-sensitive Aussie.
Against the backdrop of the recent hawkish remarks by several Fed officials, Thursday's better-than-expected US macro data reaffirms market expectations that the US central bank will continue to tighten its monetary policy. In fact, the markets have started pricing in the possibility of another 25 bps lift-off at the June FOMC meeting. This, in turn, pushed the yield on the rate-sensitive two-year US government bond to a two-and-half-month high on Thursday and supports prospects for the emergence of some dip-buying around the USD.
The market sentiment, meanwhile, remains fragile amid worries about a global economic slowdown and the US debt ceiling impasse. It is worth mentioning that both Democrats and Republican negotiators flagged little progress towards reaching a deal to raise the borrowing limit ahead of the early-June deadline when the federal government could run out of money. Moreover, Fitch placed its top-level "AAA" rating of the US on negative watch, while credit rating agency DBRS Morningstar put the US on review for a downgrade on Thursday.
Apart from this, speculations that the Reserve Bank of Australia (RBA) might refrain from hiking in June, bolstered by softer domestic data, suggests that the path of least resistance for the AUD/USD pair is to the downside. Hence, any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly. Traders now look to the US economic docket, highlighting the release of the Core PCE Price Index - the Fed's preferred inflation gauge - and Durable Goods Orders, later during the early North American session.
Technical levels to watch
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD battles 1.0700 after mixed Eurozone data
EUR/USD has come under renewed selling pressure, battling 1.0700 after mixed Eurozone Retail Sales data for April. The pair remains undermined by the cautious market mood, disappointing German Factory Orders and a broad US Dollar rebound.
GBP/USD turns south toward 1.2400 as US Dollar recovers
GBP/USD is heading south toward 1.2400, meeting fresh supply in the European session. The US Dollar is seeing renewed safe-haven buying amid a risk-off market profile, acting as a headwind to the pair.
Gold oscillates around $1,960 amid mixed responses to Fed’s June policy
Gold price is auctioning inside the woods around $1,960.00 in the early London session. The precious metal is displaying back-and-forth action as the investing community is divided about the interest rate decision by the Fed to be taken in June’s monetary policy meeting.
Is the metaverse hype back in action?
Although there are no major macroeconomic events this week, investors can expect massive volatility on a daily basis. The reasoning behind this outlook is that Apple will be conducting the 2023 Apple Worldwide Developers Conference (WWDC) on June 5.
Markets are likely to focus on ECB commentary
This is a very quiet week in terms of data and hence markets are likely to focus on last minute central bank commentary. The FOMC blackout period kicked off already on Sunday, but today we have a bunch of ECB speakers on the wires.