In currency markets, the AUD/USD currency pair is on a roll, its second day of rising on Monday. The bilaterals pair has skyrocketed to its highest level since early December. This increase is largely driven by the recent domestic political environment, alongside increased optimism around U.S.-China trade negotiations. Prime Minister Anthony Albanese came to that office after recently winning his own Australian general election. For one thing, his victory has further engendered the positive sentiment surrounding the Australian dollar.
In the wake of Albanese’s success, market participants are closely monitoring Australia’s consumer inflation figures. These figures don’t tell us anything that proponents weren’t already expecting. The Reserve Bank of Australia (RBA) could deliver a 25bp cut to the cash rate at its next policy meeting on May 20th. This change could play a huge role in determining the near-term direction of the AUD/USD pair. In the case of a pullback, the pair can expect to see intermediate support at the 0.6220 level.
Market participants are already trying to gauge the next direction in AUD/USD. Analysts think it may probe sub 0.6200 levels and maybe even reach the 0.6130 range if the bears really gain momentum. With this note of caution has come a much more positive tone overall, thanks in large part to new optimism around U.S.-China trade talks. Speculation around the negotiations has driven up the value of the Australian dollar. Further, this currency tends to be extremely volatile to shifts in the landscape of global trade.
Additionally, recent data out of the United States has been a contributing factor toward shifting market perceptions. It’s far from the rosy picture U.S. Nonfarm Payrolls report would have you believe – the most commonly used jobs report. At the same time, the unemployment rate continued to hold firm at 4.2%. Steady employment has led to a need to step back and re-evaluate what investors should expect. They’ve pushed back the date for the first possible return of the Federal Reserve’s rate-cut cycle from June to July.
Cheering on U.S. President Donald Trump’s positive signals about U.S. readiness to conclude trade deals with various countries. It is imperative that, at the same time, U.S. actively join in discussions with China. Together, these advances create a largely positive backdrop for most risk assets, including the Australian dollar.
At the same time, technical indicators would point to the AUD/USD pair being set up for additional strength. It’s been trading above its 200-day Simple Moving Average for several weeks, and daily chart oscillators are starting to indicate bullish momentum. This technical structure should continue to provoke further buying interest, while traders stay on the look out for signs of reversals.