Technical Analysis

AUD/USD Price Analysis – April 04, 2024

By LonghornFX Technical Analysis
Apr 4, 20244 min

Daily Price Outlook

Despite geopolitical tensions and concerns about a slowdown in China, the AUDUSD currency pair has maintained an upward trend and remained well-bid around the 0.6607 level. The bullish bias can be attributed to the upbeat domestic economic data, such as higher Judo Bank Services and Composite PMIs, which typically strengthen the Australian dollar (AUD) and contribute to the AUD/USD pair gains. Meanwhile, the improved Judo Bank PMI data and Building Permits figures suggest a stronger Australian economy, likely bolstering the AUD currency. In addition to this, the bearish US dollar, triggered by the lower US Treasury yields, was seen as another key factor that kept the AUD/USD pair higher.

Impact of RBA's Stance and Economic Data on AUD/USD

On the AUD front, the Reserve Bank of Australia (RBA) didn't discuss raising interest rates in their March meeting. They find it hard to predict future rate changes. They think things are balanced but need more time to be sure inflation will be where they want it. Westpac, summarizing the RBA meeting, thinks the current cash rate is fine for now, but it might change later. Basically, they're being careful and not making any quick decisions about interest rates until they're more certain about the economy.

On the data front, Australia's Judo Bank Services PMI rose to 54.4 in March from 53.5 in February, indicating growth in the services sector. The Judo Bank Composite PMI also improved to 53.3 from 52.4, reflecting overall economic expansion. However, Building Permits fell by 1.9% in February, missing expectations for a 3.3% increase, though they were up 5.2% year-on-year.

Meanwhile, Australian Industry Group (AiG) Industry Index improved to -5.3 in February, signaling a smaller contraction compared to the previous -14.9 reading. The AiG Manufacturing PMI and AiG Construction PMI also showed improvement, coming in at -7 and -12.9, respectively, indicating a slowdown in the pace of decline in these sectors.

Therefore, the RBA's cautious stance on interest rates and the mixed economic data could lead to a neutral impact on the AUD/USD currency pair. While positive PMI figures indicate economic growth, the RBA's reluctance to raise rates and the decline in Building Permits could limit the AUD's strength against the USD.

Impact of USD Performance and Economic Indicators on AUD/USD

On the US front, the broad-based US dollar continued its decline and remained well offered around 103.23, mainly due to lower US Treasury yields and increasing expectations for an imminent interest rate cut later this year. Cleveland Fed President expects rate cuts this year, while San Francisco Fed President thinks three rate cuts in 2024 are reasonable with more evidence. They both have different opinions on the timing and number of rate cuts, but they agree that economic conditions will determine the final decision.

On the data front, US ADP Employment Change increased by 184K in March, surpassing expectations and indicating improved job growth compared to February's 155K rise. However, US ISM Services PMI declined to 51.4 in March, falling short of expectations, signaling a slowdown in the services sector.

Conversely, US ISM Manufacturing PMI unexpectedly expanded in March to 50.3, up from February's 47.8, marking the highest level since September 2022. Therefore, the US dollar's decline, fueled by lower Treasury yields and expectations of a future interest rate cut, helped the AUD/USD pair to stay bid.

AUD/USD Price Chart - Source: Tradingview
AUD/USD Price Chart - Source: Tradingview

AUD/USD - Technical Analysis

The Australian Dollar (AUD/USD) shows a robust ascent, registering at 0.65969 with a 0.43% increase, indicative of a solid bullish sentiment. This movement aligns with the three white soldiers candlestick pattern, suggesting a strong uptrend and attracting traders' attention to the pair's potential for further gains. The currency trades above its pivot point of 0.6585, which serves as a critical juncture for short-term direction. Resistance levels at 0.6611, 0.6634, and 0.6654 mark the thresholds where selling pressure could intensify, while immediate support at 0.6562, followed by 0.6545 and 0.6525, provides downside protection.

With the Relative Strength Index (RSI) at 71, the AUD/USD is on the brink of the overbought zone, suggesting that the rally might soon face resistance. However, the 50-day EMA of 0.65 reinforces the upward trend, indicating that the currency has solid ground to sustain its momentum.

In light of this technical outlook, a prudent strategy would involve initiating a long position above 0.65856, aiming for a take profit at 0.66230, and placing a stop loss at 0.65620 to mitigate potential downside risks. This approach capitalizes on the current upward trajectory while remaining vigilant of the inherent market volatility.

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