- Retail Sales in the United States plunged as Industrial Production decelerated.
- US Consumer Sentiment improved, but the needle on inflation expectations rose.
- AUD/USD Price Analysis: Could test 0.6600 with a daily close below 0.6700.
AUD/USD reverses its course after failing to break the 200-day Exponential Moving Average (EMA) at 0.68099m re-treating beneath 0.6700. economic news from the United States (US), alongside a hawkish tone of US Federal Reserve (Fed) officials, were the driving factors of AUD/USD’s price action. The AUD/USD is trading at 0.6698, down 1.26%.
Risk-off impulse, and US consumer’s higher inflation expectations, bolstered the USD
Sentiment remains deteriorated. US Retail Sales in March dropped 1% MoM, disappointing analysts and indicating a sharper contraction than the anticipated 0.4%. Annual data for the month was 2.9%, falling short of the previous month’s 5.9%. Simultaneously, the Fed disclosed that Industrial Production had decreased for the first time in 2023, expanding only 0.4% MoM, trailing behind February’s 0.9% data and lower than the projected 0.2%. A reduction in durable goods caused a decline in production output.
In April, the University of Michigan (UoM) Consumer Sentiment poll indicated a rise in sentiment from 62 to 63.5. However, there was a 1% increase in inflation expectations for one year, climbing from 3.6% to 4.6%.
Following the UoM report, the AUD/USD extended its losses, as shown by US Treasury bond yields pushing higher, while the US Dollar (USD) jumped from new two-week lows of around 100.788, as portrayed by the US Dollar Index (DXY).
On the Australian front, a solid employment report crushing estimates of 20K, at 53K in March, suggests that although the Reserve Bank of Australia (RBA) paused hiking rates, the RBA might resume its campaign as the Unemployment Rate dipped to 3.5% from 3.6%. In the latest meeting, the RBA’s Governor Philipe Lowe said that the pause did not imply that further increases were off the table and commented that the central bank would be data dependent.
AUD/USD Technical Analysis
Given the backdrop, the AUD/USD plummeted sharply after testing the 200-day EMA. Nevertheless, the fall could be capped by the 20-day EMA at 0.6701, a price level sought by buyers, as the last line of defense. A further decline could pave the way toward the April 13 low at 0.6685, followed by the weekly low at 0.6619.
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The AUD/USD pair recently tested the resistance of 200-day moving average (EMA), but has since reversed course back below 0.6700.
In recent weeks, the AUD/USD pair has been trading on positive momentum, as investors watched a rally unfold from the recent lows of 0.6455. The pair moved steadily higher, as the Australian dollar gained favor over the US dollar. The AUD/USD pair then neared the 200-day EMA at 0.6705, only to be briefly rejected at this key level.
The focus eventually shifted back to the downside, as the AUD/USD pair slid for four consecutive days after failing to make a sustained move above the 200-day EMA. The retreat continued this week as the AUD/USD pair moved well below the 0.6700 mark, reaching a low of 0.6638.
Analysts attribute part of the recent declines to US dollar strength, as well as rising US Treasury yields. The US dollar has continued to gain ground against a basket of major currencies, while US 10-year Treasury yields are on their way to topping 3.00%.
The outlook remains favorable for the AUD/USD pair, however, with the technical bias remaining bullish in the medium to long-term. The pair may be headed lower in the short-term before resuming the uptrend. On the upside, a break above 0.6700 could pave the way for a move to 0.6800. On the downside, any dips should find solid support at 0.6650 and 0.6600.