The Australian Dollar (AUD) is experiencing slight declines, currently trading at approximately 0.7003 against the US Dollar (USD) during the European trading session on Monday. This movement reflects the AUD facing selling pressure as the USD strengthens amid rising expectations regarding the Federal Reserve’s monetary policy. Market sentiment has shifted towards the anticipation of at least two interest rate hikes within the year, bolstered by recent economic indicators.
At this moment, the US Dollar Index (DXY), which measures the USD’s performance against a basket of six major currencies, is up by 0.1%, nearing 100.90. Analysts from Bank of America (BofA) have flagged expectations for three interest rate hikes of 25 basis points each at the upcoming meetings in September, October, and December. This represents a notable shift from earlier projections that the Fed might choose to maintain its current rates. BofA attributed this outlook to data suggesting that core inflation remains too high and continues on an upward trajectory. They cited the robust jobs report from April as a significant factor influencing the Fed’s hawkish tone.
As for the Australian Dollar, investors are keenly awaiting the upcoming releases of the Consumer Price Index (CPI) and employment data for May, set to be published on Wednesday and Thursday, respectively. These indicators are expected to provide additional clarity on the economic landscape in Australia.
Technical analysis of the AUD/USD pair indicates a bearish sentiment, as it holds below the 20-period exponential moving average (EMA) at 0.7069 and below a prior trend-line resistance near 0.7096, both of which are acting as resistance points. The Relative Strength Index (RSI) is positioned around 37, remaining in bearish territory and indicating that the pair may continue to face downward pressure even as it consolidates near the 0.7000 mark.
To counter the bearish trend, initial resistance is identified at the 20-EMA around 0.7069, with the former rising trend line at 0.7096 serving as a secondary barrier. In order to relieve the current bearish bias and foster a more significant recovery, a daily close above these resistance levels will be required. Conversely, a failure to reclaim these thresholds could render the AUD/USD pair susceptible to further declines, possibly shifting below the crucial 0.7000 level.
In addition, the Consumer Price Index (CPI), released monthly by the Australian Bureau of Statistics, measures fluctuations in the prices of a broad range of goods and services consumed by households. This indicator serves as a critical gauge of headline inflation—especially following a new methodology introduced for more consistent monthly readings starting from April 2024. The year-over-year CPI metric compares current prices to those from the same month in the previous year, with higher readings viewed positively for the Australian Dollar and lower readings seen negatively.
