- Australian Dollar under pressure due to risk aversion and lower commodity prices.
- US Dollar extends weekly gains despite weaker-than-expected US Consumer Sentiment data.
- The AUD/USD has lost another key support level after falling below 0.6680.
The AUD/USD accelerated to the downside after Wall Street’s opening bell, as the US dollar strengthened and equity and commodity prices declined. The pair dropped to 0.6650, the lowest level in more than a week.
US data
The US Import and Export Price Index declined as expected, but less than forecast. The significant decrease in annual rates will help bring inflation closer to the Federal Reserve’s target.
A separate report showed that the University of Michigan’s Consumer Sentiment Index fell to 57.7 in May from 63 in April, below the 63.5 expected by market consensus.
The US Dollar briefly weakened after the Consumer Sentiment data, only to regain strength. The Greenback is trading at daily highs across the board, extending its weekly gains, supported by risk aversion. Commodity prices are weakening again, adding pressure to the Australian Dollar.
Extending the reversal
The AUD/USD peaked during the week at 0.6817, the highest level since February, before reversing its course. Over the last two days, it has lost more than a hundred pips, slipping below the 20-day Simple Moving Average (SMA).
On Friday, it broke below the 0.6680 support area. The next relevant support zone is around 0.6635; below this, attention will turn to 0.6600. To alleviate the bearish pressure, the Aussie needs to regain 0.6680 initially.
Next week’s US data includes Retail Sales on Tuesday. In Australia, it will be a busy week with the release of the Reserve Bank of Australia minutes (Tuesday), the Wage Price Index (Wednesday) and Employment Change (Thursday).
Technical levels
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The AUD/USD pair fell sharply to its fresh one-week low of 0.6647 in the early European trading session on Wednesday. The AUD/USD was under pressure of late due to intensifying risk-off sentiment among investors.
Data released showed that manufacturing and service sector activity in Australia continued to contract in April. It reaffirmed the deep recession which the country is facing. The Reserve Bank of Australia kept its key rate unchanged at 0.25%. It also took additional steps to boost the economy. But, these measures have not been enough for the currency to shrug off negative sentiments.
Concerns about increasing infections of COVID-19 in the US also weighed on the AUD/USD pair. The flare-up in the number of infections raised worries of a second wave of the pandemic. This reminded investors of the fragile state of the US economy despite a surge in equities. It caused investors to move away from the riskier Aussie against the safe haven greenback.
A stronger US dollar was also a factor for AUD/USD’s slump. The US Dollar Index touched fresh highs since the start of this month. The US dollar’s safe haven status has been pushing up on the US dollar index.
Technical levels also weighed on the pair. The AUD/USD pair found strong resistance at its previous one-week low of 0.6669. it cleared the way for a deeper slump in the pair.
The AUD/USD pair is likely to find support around 0.6589, its lowest level since March. Further momentum to the downside will likely find support at 0.6535. On the upside, resistance is likely to come at 0.6645. A break above this could take the pair towards its solid resistance at 0.6750.
