- The AUD/USD is aiming lower in the month and would record its most significant loss since March 2020., down 5.57%.
- A risk-off market mood dragged the AUD/USD lower as late position trading favors the greenback.
- US Treasury yields jumped late in the session, led by the 10-year up ten basis points, at 2.936%.
- AUD/USD Price Forecast: Bears prepare an assault of 0.7000.
The AUD/USD plummets from daily highs near 0.7200 and tanked below 0.7100 as market sentiment turned sour, ahead of a busy week for the Australian and US economic dockets, as both countries’ central banks would have monetary policy meetings. At the time of writing, the AUD/USD is trading at 0.7069.
Market sentiment weakens the risk-sensitive AUD
Risk-aversion rules April’s last trading day, as portrayed by US equities set to record losses between 2.32% and 4.09%. Factors like China’s covid outbreak, Federal Reserve tightening, and the Russia-Ukraine war developments weighed on market sentiment.
On Friday, the Fed’s favorite inflation gauge, the core Personal Consumption Expenditures (PCE), rose to 5.2% y/y, lower than the 5.3% estimations. However, headline inflation expanded by 6.6% y/y, from 6.3% in the previous month. The data further strengthens the case for a Federal Reserve rate hike in the next week, as the US central bank chief Jerome Powell expressed during the month that a 50-bps increase is “on the table.”
Hotter than expected inflationary readings reported during the week on the Australian front paint a problematic scenario for the Reserve Bank of Australia (RBA) as a federal election looms on May 16th. Money market futures odds of a 0.25 bps increase by the RBA sit at an 85% chance, though some analysts were expecting a 40-bps rate hike.
The consensus amongst economists is that the board would stay put and hold rates unchanged. However, according to Bloomberg, Goldman Sachs Group, Inc. sees the RBA delivering a 40-bps move in June.
Therefore, the AUD/USD scenario favors the greenback. But, a higher-than-expected RBA rate increase or a “dovish” Federal Reserve would boost the prospects of the AUD, though it’s unlikely to happen.
AUD/USD Price Forecast: Technical outlook
The AUD/USD remains downward biased, accelerating its downward trend as shown by the daily chart. The MACD remains bearish, as the MACD/signal lines aim lower while the histogram expands downwards. Additionally, the daily moving averages (DMAs) above the spot price confirm the aforementioned, though it’s worth noting that the 50-DMA remains on top of the 200 and the 100-DMA.
That said, the AUD/USD’s first support would be February’s 4 cycle low around 0.7051. A break below would expose February’s 1 daily low at 0.7033, followed by the S3 daily pivot at the triple-zero figure at 0.7000.
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