Australian Dollar inches higher due to the hawkish sentiment surrounding the RBA

• The Australian Dollar retraces its recent losses due to the hawkish sentiment surrounding the RBA.
• The Australian Dollar may remain calm on a thin trading day resulting from the Queen’s Birthday holiday.
• The US Dollar (USD) extends its gains as US Treasury yields advance on hawkish sentiment surrounding the Fed.

The Australian Dollar (AUD) gains ground on Monday following the decline in the previous session. The US Dollar (USD) regained its strength from the better-than-expected US employment data released on Friday, causing traders to delay their expectations of Federal Reserve’s (Fed) rate cuts. This has put pressure on the AUD/USD pair.

The Australian Dollar may limit its downside due to the hawkish sentiment surrounding the Reserve Bank of Australia (RBA). Last week, RBA Governor Michele Bullock indicated that the central bank is prepared to increase interest rates if the Consumer Price Index (CPI) does not return to the target range of 1%-3%, according to NCA NewsWire.

The US Dollar (USD) extends its gains due to the rise in US Treasury yields as a strong US jobs report would bolster a hawkish stance from the Federal Reserve. The CME FedWatch Tool indicates that the likelihood of a Fed rate cut in September by at least 25 basis points has decreased to nearly 48.0%, down from 54.8% a week earlier.

Daily Digest Market Movers: Australian Dollar appreciates on hawkish RBA

• Rabobank suggested in its report that the Federal Reserve may cut rates in September and December, more likely because of a deteriorating economy than because of progress on inflation. This is because they think that the US economy is entering a stagflationary phase with persistent inflation and an economic slowdown that is likely to end in a mild recession later this year.
• According to the US Bureau of Labor Statistics (BLS) on Friday, May’s US Nonfarm Payrolls (NFP) increased by 272,000, up from 165,000 in April. The wage inflation, as measured by the Average Hourly Earnings, rose 4.1% YoY in May from 4.0% (revised from 3.9%) in April, above the market consensus of 3.9%.
• The National Bureau of Statistics of China reported on Friday that Trade Surplus widened to $82.62 billion year-over-year in May, surpassing the expected balance of $73.00 billion and the previous balance of $65.55 billion. Meanwhile, imports rose by 1.8% from the prior year to USD 219.73 billion in May, missing market estimates of 4.2% while experiencing a significant decrease from April’s 8.4% rise. Any change in China’s economy could impact the Australian market as both countries are close trade partners.
• On Friday, Australia’s Trade Balance widened to A$6,548 ($4,321.68) million MoM in May, exceeding the expected A$5,500 million and April’s balance of A$5,024 million. Imports plunged by 7.2% MoM in May, swinging from April’s 4.2% increase. Exports shrank 2.5% following the previous decline of 0.6%.
• On Thursday, Initial Jobless Claims showed the number of people claiming unemployment benefits in the US increased by 8,000 to 229,000 for the week ending May 31, surpassing market expectations of 220,000. This marks the highest reading since the eight-month high of 232,000 recorded in early May.

Technical Analysis: Australian Dollar holds ground above 0.6550

The Australian Dollar trades around 0.6580 on Monday. Analysis of the daily chart suggests a weakening bullish bias for the AUD/USD pair, as it has fallen below the lower boundary of an ascending channel pattern. This is corroborated by the 14-day Relative Strength Index (RSI), which is positioned slightly below the 50 level.

The key support appears at the major level of 0.6550, followed by the significant level of 0.6500. A break below the latter could exert pressure on the AUD/USD pair to navigate the area around the throwback support at 0.6470.

On the upside, the 21-day Exponential Moving Average (EMA) at 0.6625 appears as the key barrier, aligned with the lower boundary of the ascending channel around the level of 0.6635. A return into the ascending channel pattern could reinforce the bullish bias and lead the AUD/USD pair to target the psychological level of 0.6700, followed by May’s high of 0.6714.

AUD/USD: Daily Chart