Market Analytics and Technical Considerations
Key Points
- Post-Powell, the Fed’s top rate falls below 5%.
- Commodities and the AUD will benefit from China’s efforts to loosen COVID restrictions.
- Technical analysis hints at a potential turn around.
FOUNDATIONAL BACKDROP IN AUSTRALIAN DOLLARS
Favoring growth The Australian dollar has increased as a result of a risk-on atmosphere in international markets. Wednesday night, Fed Chair Jerome Powell released a statement that was both neutral and dovish and showed no signs of objecting to the recent “Fed shift” storyline. A 50bps interest rate hike in December, avoiding overtightening, and delivering a soft landing were some of the speech’s features. This contradicts their apparent main goal, which for a while seemed to be containing inflation. The highest rate in 2023 after comment has now decreased to 4.933% in May from 5%.
Following China’s announcement that all restrictions in Guangzhou will be lifted, the USD naturally declined versus the majority of other currencies, with the AUD benefiting more so. While Vice Premier Sun Chunlan claimed that “China is seeking to speed up the eradication of sizable shut downs,” other provinces are also shown sluggish signs of improvement. The Australian dollar (AUD) received additional support as a result of the Chinese Caixin manufacturing PMI data beating forecasts, which is beneficial for the overall commodity cycle and Australia’s tight links with China as its main supplier of commodities.
The Australian manufacturing PMI, on the other hand, fell short of expectations, but the above-mentioned external context has obscured this data as markets anticipate the important publication of the main PCE deflator (the Fed’s favored gauge of inflation) later today. If real data prints at the projected rate (5%) there may be opportunity for more Aussie appreciation, but for anything above may go against Mr. Powell’s speech and allow the dollar to find some buyers.
Technical Perspective
The rapid increase in the value of the AUD, which is presently just above the psychological 0.6800 support handle, can be seen in the daily AUD/USD market movement. As the coming ascending wedge formation usually signals approaching south, today’s lengthy upper wick (should this hold) may imply a reversal to the downside. If wedge resistance is overcome, revealing the 0.6916 swinging high, which aligns with the 200-day SMA, bulls could falsify this pattern.
As the Relative Strength Index (RSI) shows declining bullish momentum, price action diverges from the RSI, a phenomenon known as bearish divergence . In addition to the other technical factors mentioned above, bearish divergence frequently results in further fall.
Economic Activity
Major resistance levels:
0.7000
0.6916/200-day SMA
Major support levels:
0.6800
0.6700
51% of market makers are now maintaining long bets on the AUD/USD exchange rate, we usually take the opposite stance from the general consensus, but recent shifts in long and short posture have given us a short-term defensive inclination.
