The AUD/USD currency pair is bouncing back and gradually approaching the 0.6500 psychological level. This increase coincides with a decline in the US Dollar due to a wave of underwhelming economic indicators. The Australian Dollar got off to a shaky start on Wednesday. Then the tide turned, soon bringing the loonie back down when terrible Australian GDP numbers came out. That recovery takes place against a backdrop of confusing economic signs. Traders are on the lookout for the next data release to tip the scale on bearish or bullish sentiment.
On Wednesday, AUD/USD dropped sharply at the onset after the Australian Bureau of Statistics announced that GDP growth is slowing. The economy grew by a mere 0.2% quarter-on-quarter (QoQ) in the first quarter. This was a sharp deceleration from the previous quarter’s 0.6% and was even below the expected 0.4%. This bad number sent a shockwave through fears over how fast the overall economy in Australia was bouncing back. As a reaction, traders aggressively dumped the Australian Dollar.
Buyers were quick to respond at the 0.6450 support zone. This level represents the bottom of the current AUD/USD trading range. This intervention proved crucial in igniting a short-term rebound, sending the pair higher back toward the 0.6500 threshold. As of this writing, AUD/USD is trading around Tuesday’s peak, halting a complete reversal of all losses sustained in the prior day.
Traders figure that buyers have begun to halt the freefall of the Australian Dollar. Except, the currency has a hard time moving above the important psychological resistance level of 0.6500. This limit has morphed into an effective ceiling in recent sessions. In order to break upward momentum, we will need stronger economic indicators or optimistic news from the overall market.
In addition to the GDP data, recent reports on employment and manufacturing have provided a mixed picture of economic health in Australia. In May, the Services Purchasing Managers’ Index (PMI) popped back into growth territory, increasing from 50.5 in April to 50.6. This increase represents an overall modest improvement in activity in the services sector. The S&P Global Australia Composite PMI fell to 50.5 in May, falling from April’s 50.6. This decline indicates just small growth throughout the blanket.
More broadly, Australian fundamentals – housing, retail and job creation – are beginning to demonstrate impact with slowing momentum. At the same time, soft US economic indicators are adding to the bearish market mood. ADP Employment Change came in much weaker than expected for May. Private sector employers added a dismal 37,000 jobs—well below the anticipated gain of 115,000 jobs. This number is the weakest employment growth since March 2023 and shows an unambiguous deceleration in hiring momentum. April was revised down to 60,000, a revision of 2,000 lower than the original 62,000 estimate.
These developments have contributed to a decline in the US Dollar’s value, creating an opportunity for the Australian Dollar to recover some ground against its American counterpart. A major caveat from analysts is that local fundamentals have very little support to stop the pair from further gains.
Despite all of the risk and plethora of events on their way, traders will be looking ahead to Australia’s trade balance data due out Thursday. This type of data is invaluable. It would provide more useful real-time information about the health of Australia’s economy and its increasingly important exports – long-established key drivers of growth. A combination of high, steady demand for Australian exports and a subsequent positive trade balance would be bullish for the AUD.
Besides the technical bounce, market participants are looking ahead to the key US Nonfarm Payrolls (NFP) report on Friday. The indirect effects of this report will likely create some channel driven volatility in the AUD/USD pair. It’s particularly so if it deepens anticipation for a policy change from the Federal Reserve.