AUD/USD Price Analysis: Drops To Fresh YTD Low, Ascending Trendline Breakout In-Play
Key Takeaways:
- AUD/USD slips further on Wednesday and registers a fresh YTD low
- Hawkish Fed expectations assist the U.S. dollar in attracting some dip-buying and act as a tailwind to the AUD/USD pair
- PBoC's decision to slash its 5-year loan prime rate weighs on the antipodean
- Market overlooks RBA's Monetary Policy Meeting Minutes
AUD/USD pair remains under selling pressure and drops to a fresh weekly low on Tuesday during the Asian session. As of press time, the cross is placed at the $0.65259 level, down 12.6 pips/ 0.19% for the day, and has fully reversed the previous day's gains. The shared currency now looks set to extend the corrective slide further into the European session amid the prevalent tone surrounding the safe-haven greenback.
Expectations that the Fed will leave rates unchanged during the March and May meetings and start cutting rates during the third quarter of 2024 will assist the U.S. dollar in attracting some dip-buying and act as a tailwind to the AUD/USD pair.
The last few days have seen investors scale back their bets on the timing of interest rate cuts in the wake of a hotter inflation report released on Friday. This was evident from CME's Fed watch tool, which showed Fed fund futures traders have priced in an 89.5% and 64.5% chance the Fed will keep rates unchanged at 5.25% - 5.5% during the March and May meetings, respectively, up from 82.5% and 39.3% chance early last week, with the first-rate cut now seen during the June meeting.
A U.S. Bureau of Labor Statistics (BLS) report released on Friday showed Producer prices for final demand in the U.S. were up 0.3% month-over-month in January 2024, the most significant increase in five months, following a 0.1% decline in December compared to forecasts of 0.1%. Year-on-year, producer prices rose 0.9%, slightly less than 1% in December, but above expectations of 0.6%. The core PPI, which excludes food and energy, rose 0.5% on the month, pushing the annual rate higher to 2%, both above forecasts.
The hotter-than-expected wholesale inflation report came days after another U.S. BLS report showed consumer inflation in the U.S. unexpectedly rose in January, which, when combined with the recent robust U.S. job data and hawkish Fed comments, thoroughly debunks the idea of early aggressive rate cuts and supports the view that rates are likely to stay higher for longer.
Further extending support to the greenback was the upbeat University of Michigan report released on Friday, which showed consumer sentiment for the U.S. increased to 79.6 in February 2024 from 79 in January, a fresh high since July 2021 but slightly below market forecasts of 80, preliminary estimates showed. Consumers continued to express confidence that the slowdown in inflation and strength in labor markets would continue. The expectations index improved (78.4 vs 77.1), while the current economic conditions gauge edged down (81.5 vs 81.9).
Additionally, the antipodean continues to be weighed down by the latest decision by the People's Bank of China to slash its five-year loan prime rate by 25 basis points to 3.95%, more than forecasts for a 15 bps cut. It was the most aggressive cut since that rate was introduced in 2019 as China grapples with a sluggish economic recovery.
That said, the downbeat mood surrounding the antipodean saw markets overlook the latest Reserve Bank of Australia (RBA) meeting minutes, which showed members of the monetary policy committee (MPC) considered raising the cash rate during the February meeting, further centred on the observation that it would take some time for inflation to return to target and the labor market to reach full employment. However, the MPC left the cash rate target unchanged at the February meeting, centred on the observation that the risk of inflation not returning to the board's target within a reasonable timeframe had eased.
As we advance, without any significant market-moving economic news data, the Treasury bond yields and the general market risk sentiment will continue to influence U.S. dollar dynamics and ultimately provide directional impetus to the USD/CNH cross. The main focus, however, remains on the release of the Fed's January monetary policy meeting minutes on Wednesday.
Technical Outlook: Four-Hour AUD/USD Price Chart
From a technical perspective, spot prices are now looking to extend the bearish momentum beyond the key support level plotted by an upward ascending trendline extending from the mid-February 2024 swing lower-lows. The move beyond the previous YTD low, at 0.65247 level, confirms a fresh bearish breakout and supports the case for further selling around the AUD/USD pair. Spot prices could descend further toward the pivot level (P) at 0.65060, below which AUD/USD could accelerate its fall toward the 0.64663 level (S1). A clean move below this level could allow the shared currency to extend the bearish momentum further to seek support at the 0.64421 level.
On the flip side, if dip-buyers and tactical traders jump back in and trigger a bullish reversal, initial resistance comes in at the key support level (upward ascending trendline), which is now turned to the resistance level. A convincing move above this level would pave the way for a rise toward the key resistance level plotted by an ascending trendline extending from the early February 2024 swing to higher highs. A break above this level would pave the way toward the technically strong 200-day (brown) Exponential Moving Average (EMA) at 0.65673. Sustained strength above this level would negate the near-term bearish outlook and pave the way for aggressive technical buying around the AUD/USD pair. The AUD/USD pair price could rise further toward the 0.66000 psychological en route to the 0.66077 ceiling.
