- AUD/USD advanced to multi-day highs, flirting with the 0.6500 hurdle.
- The US Dollar accelerated its losses, retreating to seven-week lows.
- The RBA will release its Minutes of the May meeting on Tuesday.
Tracking advances across risk-sensitive currencies, the Australian Dollar (AUD) recovered lost ground in quite an auspicious start to the week, encouraging AUD/USD to come just pips away from the key resistance zone around the 0.6500 level.
The resumption of the sour sentiment around the US Dollar (USD) saw the US Dollar Index (DXY) tumble to new multi-week troughs south of the 99.00 support as investors assessed the erratic trade policy from the White House as well as rising geopolitical fears.
The central bank’s factor
The pair also continues to follow movements in the central banks’ sphere.
That said, Chair Jerome Powell kept a wary tone, emphasising a data-dependent posture even when the Federal Reserve (Fed) kept rates unchanged at its May meeting. Meanwhile, softer US inflation figures in April have driven markets to start pricing in a rate drop by September.
By contrast, on May 20 the Reserve Bank of Australia adopted a more dovish posture, lowering its official cash rate by 25 basis points to 3.85%. Pointing to a possibly protracted lowering cycle, the RBA forecast in its accompanying Monetary Policy Report that the rate would drop to 3.2% by 2027.
The RBA underlined ongoing uncertainties regarding local demand and global supply chains even as it acknowledged that monetary policies were now “somewhat less restrictive”. The bank lowered 2025 GDP growth to 2.1% and changed its inflation estimate to 2.6%.
While rate markets are pricing in a further 75 basis point of decrease over the next year, the Monthly CPI Indicator maintained constant at 2.4% in April.
China casts its shadow
For Australia, China’s most recent GDP numbers sent conflicting messages. For Q1, poor retail sales and slow fixed asset investment presented a more precarious picture even if industrial output shocked to the top. Beijing is aiming for 5% increase during Q2, however.
The People’s Bank of China contributed to the dovish slant by cutting by 10 basis points its 1-year and 5-year Loan Prime Rates (LPR) to 3.00% and 3.50%, respectively. Still, major drawbacks for the whole region, however, include residual instability in China’s housing market and erratic US trade policies.
Speculative bets tilted more bearish
On the Aussie, the speculative stance became more pessimistic. Reflecting a comeback in negative bets despite growing open interest and ongoing caution in more general markets, CFTC data as of May 27 showed net shorts jumped to around 61.2K contracts, the largest since early April.
Technical image and essential levels
Once again challenging its 200-day simple moving average (SMA) at 0.6444, the pair is at a crucial tipping point for a continuous ascent.
A clear break would allow a potential move to the 2025 high of 0.6537 (May 26), seconded by the November 2024 peak at 0.6687 (November 7) and then the 2024 high of 0.6942 (September 30, 2024).
On the downside, first support falls at the May bottom of 0.6356 (May 12), while additional support comes from the 55-day and 100-day SMAs at 0.6354 and 0.6323, respectively. Deeper retracing would see the pair review the April 2025 bottom of 0.5913 (April 9) and maybe even the floor derived from the epidemic period, 0.5506 (Mar 19, 2020).
Momentum indicators provide a quite positive indication. While the Average Directional Index (ADX) remains close to 21, indicating consistent but dubious trend strength, the Relative Strength Index (RSI) has moved up to nearly 58.
AUD/USD daily chart
What’s next in Oz
The RBA is set to publish its Minutes on June 3, which will be followed by Business Inventories and Current Account results. The Ai Group survey is expected on June 4, coinciding with the final S&P Global Services PMI and the Q1 GDP Growth Rate figures. On June 5, Australia will release its Balance of Trade results, ahead of the final readings of Building Permits and Private House Approvals on June 6.
