AUD/USD Bounces Off From A Two-Months Low On Fresh U.S Dollar Selling, Further Uptick Seems Elusive
Key Takeaways:
- AUD/USD caught fresh bids during the Asian Session and bounced off from a two-month low
- Fresh U.S dollar selling turns out to be a key factor that helped limit further losses around the major currency pair
- Firm Hawkish Fed expectations and rising geopolitical tensions continue to lend support to the buck and would help limit further gains around the AUD/USD cross
AUD/USD cross attracted some buying on Monday. It rose above the 0.64700 level during the mid-Asian session following a modest bounce from the vicinity of the 0.64594 level, or its lowest level in two months, touched earlier in the session. The pair starts the week on the right foot; however, any further pullback seems elusive amidst the prevalent tone surrounding the greenback.
The U.S. Dollar Index (DXY), which measures the greenback against a basket of currencies, traded with modest losses below the $106.000 mark on Monday during the Asian session and turned out to be a key factor that helped cap the downside for the AUD/USD pair.
The safe-haven currency, however, remains near its highest level or five-month high (106.110) touched on Friday. This suggests that any further uptick could still be seen as a selling opportunity, warranting caution to traders against submitting aggressive bullish bets around the major currency pair.
This comes amid market expectations that the Fed will delay cutting rates and prolong its hawkish stance through 2024. Local data last week showed U.S. inflation continues to remain sticky, and earlier this month's stronger-than-expected U.S. jobs number added to expectations that the Fed may not move to lower interest rates as soon as the June meeting but rather have to wait further before starting cutting rates, probably toward late 2024.
The probability of a 25-bps June rate cut following the two key indicators of inflation has lessened than before, as seen in CME's Fed Watch tool. The current pricing is 16.5%, down from 59.1% one week ago. The Fed's probability of leaving rates at 5.25 – 5.5% during the June meeting now stands at 83.0%, up from 34.2% one week ago.
That said, the greenback further continues to draw support from rising geopolitical tensions amid the recent attack by Iran against Israel. According to a report by CNBC, Iran fired over 300 drones and missiles on Israel on Saturday night, marking the first instance Iran launched a direct military attack on the Jewish state. A "vast majority" of the Iranian drones and missiles were intercepted, according to Israel Defense Forces spokesperson Rear Adm. Daniel Hagari.
Investors look forward to the U.S. docket, which will feature the release of the Retail Sales (MoM) (Mar), Core Retail Sales (MoM) (Mar), and the N.Y. Empire State Manufacturing Index (Apr) data reports.
Technical Outlook: One-Day AUD/USD Price Chart
The AUD/USD cross is currently trading below the 0.64777 support level, which has now turned into a resistance level as the Antipodean bulls try to keep their heads above water to undo the recent losses. However, the bullish uptick may be limited given the current bearish sentiment surrounding the AUD/USD cross and the multiple hurdles the AUD/USD price faces upwards.
That said, above the current price level lies a fundamental resistance level plotted by an upward-ascending trendline extending from the mid-February 2024 swing lower lows. If the price pierces this barrier, the next resistance level is at 0.65506, followed by the 0.65725 level embraced by the 200-day EMA level. A convincing move above this level would negate the bearish outlook, prompting aggressive buying around the shared currency.
On the downside, the 0.64547 level (S2) protects the immediate downside of the AUD/USD pair. A clean move below this level will pave the way for a drop toward the 0.64426 support level, below which the price AUD/USD could accelerate its fall below the 0.64000 round mark toward the 0.63636 support level.
