Technical Analysis

AUD/USD Price Analysis – July 02, 2024

By LonghornFX Technical Analysis
Jul 2, 20244 min

Daily Price Outlook

Despite the risk-on market sentiment, the AUD/USD currency pair failed to gain any positive traction and remained under pressure around the 0.6643 level, hitting the intraday low of 0.6634.

The downward trend can be linked to the Reserve Bank of Australia's (RBA) Index of Commodity Prices, which fell by 4.1% year-on-year in June, following an upwardly revised 6.0% decline in the previous month. The June decline marks the mildest deflation in sixteen consecutive months.

Meanwhile, the Minutes of the Reserve Bank of Australia's (RBA) June monetary policy meeting, released Tuesday, revealed that they decided not to raise interest rates in June, believing it was better to keep them steady.

This was seen as another key factor that undermined the AUD currency and contributed to the AUD/USD pair's decline. Moreover, the bullish US dollar, backed by the advance in US Treasury yields, has also played a major role in keeping the AUD/USD pair lower.

Impact of Recent Economic Developments on the AUD/USD Pair

On the AUD front, the Reserve Bank of Australia's (RBA) Index of Commodity Prices, fell by 4.1% year-on-year in June, marking the mildest deflation in sixteen months. The RBA's June meeting minutes, released Tuesday, showed that the board decided to keep rates steady, citing a stronger case for holding than hiking.

They highlighted upside risks to inflation, with the Melbourne Institute's Monthly Inflation Gauge rising by 0.3% in June. Deputy Governor Andrew Hauser noted that policy should not be based on a single inflation report, emphasizing the need for detailed analysis of upcoming economic data.

On the data front, the Judo Bank Australia Manufacturing PMI fell to 47.2 in June from 49.7 in May, marking the fifth consecutive monthly decline and the sharpest since May 2020. This drop indicates a faster deterioration in manufacturing conditions, reflecting ongoing challenges in the sector.

Therefore, the AUD/USD pair face pressure as the RBA keeps rates steady amidst declining commodity prices and weak manufacturing PMI, while inflation risks and upcoming economic data remain pivotal for future policy decisions.

On the positive side, the potential liquidity injections by the PBOC could bolster market sentiment, benefiting the AUD/USD pair due to Australia's economic dependency on Chinese trade.

Potential Impact of Bullish US Dollar on AUDUSD Pair Amidst Fed Rate Cut Expectations

On the US front, despite positive market sentiment and expectations of a Fed rate cut in September, the dollar is strengthening as investors await clearer signals on monetary policy. However, these gains may be short-lived amid growing consensus for upcoming rate cuts.

The US ISM PMI data released Monday showed the manufacturing sector contracted for a third straight month in June, with factory input prices falling to a six-month low. The Institute for Supply Management reported its Manufacturing PMI remained in contraction for the second consecutive month at 48.5, below expectations of 48.7.

Meanwhile, the Employment Index also declined to 49.3 from May's 51.1, signaling slower hiring. Moreover, the Prices Paid Index dropped to 52.1 from 57, indicating easing inflation pressures.

These figures, alongside the PCE Price Index showing May's inflation at its lowest in over three years, reinforce expectations for potential Fed rate cuts.

Therefore, the bullish US dollar, bolstered by potential Fed rate cuts and subdued inflation pressures, is likely to exert downward pressure on the AUDUSD pair in the near term.

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

AUD/USD - Technical Analysis

The AUD/USD is currently trading at $0.66514, down 0.17% for the day. On the 4-hour chart, the pivot point is set at $0.6640, providing a crucial level for traders to watch. Immediate resistance is found at $0.6660, followed by higher resistance levels at $0.6675 and $0.6690.

On the downside, immediate support is located at $0.6620, with further support at $0.6606 and $0.6591.

Technical indicators show a mixed outlook. The Relative Strength Index (RSI) stands at 48, indicating neutral momentum. The 50-day Exponential Moving Average (EMA) is positioned at $0.6655, suggesting a potential support level just above the current price.

The market sentiment for AUD/USD appears cautious, with traders awaiting further economic data and market cues. The recent price movement suggests that the pair is struggling to find a clear direction.

A break above the immediate resistance of $0.6660 could signal a short-term bullish trend, while a fall below the immediate support of $0.6620 may lead to further declines.

In conclusion, traders might consider buying AUD/USD above $0.66401 with a take profit at $0.66671 and a stop loss at $0.66227.

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