The pair has recently broken out of the wedge and has since tried twice to penetrate the 0.7815 level. This is a little worrying and we should now see a higher swing low created above the 0.7690 to make the break of the resistance more likely. The USOIL rallying from our support zone and the big bank analyst estimations on the future commodity demand support the idea. At the same time, the risk of coronavirus mutations spreading from Brazil and India is not to be ignored. Also, the RBA’s willingness to increase their bond-buying program and the estimations that the bank will keep the rates low until 2024 creates a drag on the Australian currency. This leaves us with the only reliable indicator of the near-term future of the currency, price action. Let’s take a look at both fundamentals and technical factors impacting the AUD. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
The AUDUSD pair was pushed almost to the 50-day SMA by the CPI disappointment before the buyers came in at 0.7725. Our two confluence zones are at 0.7684 – 0.7723 (the 38.2% Fibonacci retracement level, recent swing low and both 20-day and 50-day SMAs) and 0.7826 – 0.7865 (the 61.8% Fibonacci retracement level, swing high and the high of the current bullish channel. Technically, the pair is bullish as long as the traders are willing to defend levels above the 0.7690 low. This obviously has to be accompanied by enough motivation to fight the hearts at the 0.7815 resistance.
Australian inflation numbers came in at a lower level than expected by the analyst consensus. The headline number was 0.6% vs. 0.9% predicted by the analysts while the core inflation (trimmed mean) was confirmed at 0.3%. The analyst expectation was 0.5% change quarter on quarter. This pushed the AUD lower as the realisation of RBA’s inflation target of 2% seems difficult and causes analysts to push the date of the next rate hike further into the future. Reuters reports that the cash rate is expected to stay at record lows until the end of 2024. No wage pressures are seen in the economy as there is spare capacity in the job market. This is obviously seen as negative for the AUD
Goldman Sachs and Bank of America, however, point to the increasing demand for oil which is likely to support commodity currencies. Goldman expects the price of oil to reach $80 on increasing demand and sees commodities rallying over the next six months. Highly correlated AUDUSD is likely to rise with the price of oil. Note that USOIL rallied from the support zone we identified on April 22nd (here).
Currency Performance Charts
Over the last ten days, the EUR performance has been mixed. Euro has not been able to hold its ground against the commodity currencies AUD and NZD but has gained relative to CHF, GBP and JPY. Over the last two days, the EUR has gained momentum against the JPY but lost some against the USD. The two-day performance has also been weak against the commodity currencies. Percentage values in the above charts are recorded at the time of writing this report and remain subject to change. Note that some of the currency pairs have been inverted to highlight the performance of the EUR against its peers.
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Market News & Facts
- Australia and the UK are expected to sign a free trade agreement in June
- AUD CPI numbers come in below expectations.
- No change in policy or asset purchases expected from the Fed.
- Big consumer confidence surprise (121.7 vs. 113.1 expected) in the US
- Treasury yields moved higher supporting USD and pressuring tech stocks.
- The 10-yr yield increased 0.05% to 1.62%
- US housing prices moving higher support the sentiment.
- Vaccination rate very ‘healthy’ in the US but lags elsewhere.
- India suffering from high rates of infections and deaths
The Next Main Risk Events
- CAD Retail Sales
- EUR ECB President Lagarde’s Speech
- OIL WTI Crude Inventories
- USD FOMC Statement
- USD FOMC Press Conference
- USD Gross Domestic Growth
- USD Unemployment Claims
- USD Pending Home Sales
- CNY Manufacturing PMI
For more information see the TIOmarkets economic calendar here.
Chief Market Analyst
By reading further you agree with our disclaimer at the bottom of this page and acknowledge that we do not provide investment advice.
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