Wed, May 22, 2024

AUD/USD Resistance at 0.65, Support at 0.64 Amid Volatility

AUD/USD - The Greenback: US dollar and Australian dollar banknotes.

Quick Look:

  • AUD/USD resistance at 0.65, support at 0.64, with fluctuations influenced by economic indicators and Federal Reserve policies.
  • Traders remain cautious, eyeing upcoming US economic data releases; sentiment leans towards modest gains with potential slow declines.
  • Focus on short-term trades, buying on dips, and taking profits near resistance, especially with anticipated market moves in Q3.
The Australian Dollar (AUD) against the US Dollar (USD) has experienced a tumultuous period. This period has been marked by rallies and retracements, primarily driven by global economic developments and monetary policy decisions from the Federal Reserve (Fed).

AUD/USD Forecast: Testing Resistance at 0.65, Support at 0.64

The AUD/USD pair has shown a spirited rally, initially pushing towards the upper echelons of recent price ranges, but it has since retraced, hinting at an underlying vulnerability. Resistance is pegged at the psychological marker 0.65 and fortified by the 50-day Exponential Moving Average (EMA). Conversely, support holds at 0.64, suggesting a potential retest if downward pressures prevail.

The currency’s sensitivity to global growth prospects and the Fed’s monetary policy have positioned it for potential declines. The strategy is to fade the rally unless there is a decisive break above the 50-day EMA.

AUD/USD Current Trends: Trading from 0.6400 to 0.6650

Currently priced at 0.6605, the AUD/USD is between 0.6400 and 0.6650. This movement is highly anticipative of key US economic indicators such as the Consumer Price Index (CPI), Producer Price Index (PPI), and Retail Sales, which could provide further directional clues.

The market remains cautious, projecting modest gains amid concerns over low liquidity and a potentially slow grind lower. The impending economic data releases further exacerbate this sentiment, keeping traders on edge.

Economic Impact: Fed’s Tight Policy vs RBA’s Steady Rates at 4.35%

The Fed maintains a tight policy stance, with the “higher-for-longer” mantra. Although expectations are set for rate cuts later in the year, contingent upon prevailing economic conditions. Notable remarks from Fed officials, including Mary Daly and Raphael Bostic, have underscored the necessity of a prolonged restrictive policy, albeit acknowledging the uncertainties ahead.

Consumer sentiment has notably declined, with the initial reading for May plunging to 67.4 from 77.2 in April, signalling weaker expectations than the anticipated 76.0. The inflation outlook remains subdued, with projections of 3.5% for the upcoming year and 3.1% over the next five years.

The Reserve Bank of Australia (RBA) holds the interest rate steady at 4.35%, with expectations to maintain this into the next year. Inflation is anticipated to align within the RBA’s target range by the end of 2024, with wage and employment figures likely having a limited immediate impact on the RBA’s decisions. However, strong figures could fuel rate hike speculations.

AUD/USD Positioning: Leverage Long Positions, Sell Near 0.6660

Futures trading indicates a shift towards less bearish sentiments, with an increasing lean towards long exposure. The currency pair has been choppy, predominantly within the top third of the 0.6400 – 0.6650 range. The recommended strategy for traders is to capitalise on dips and book quick profits near resistance levels, particularly around the 0.6660 mark, anticipated for Q3 opening.

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