USD Strength Persists as AUD Faces Selling Pressure Amid Economic Data

The AUD/USD currency pair commenced the Asian trading session on Friday in a cautious stance, facing ongoing selling pressure. This dip occurred as a result of the Federal Reserve's recent choice to keep interest rates unchanged on Wednesday but hinting at the possibility of another rate increase later in the year.

Recent Australian data released on Friday indicated positive developments. The preliminary S&P Global Services PMI for September saw an increase to 50.5, up from August's 47.8, signifying expansion in this sector. However, there was a decline in the Manufacturing PMI, dropping to 48.2 from the previous reading of 49.6.

Furthermore, Australia is expected to announce a final budget surplus of A$22.1 billion ($14.16 billion) for the fiscal year ending in June 2023. This achievement can be attributed to robust job growth and substantial profits from mining, marking the first surplus in 15 years under the Labor government. This surplus represents approximately 0.9% of the nation's gross domestic product (GDP). The government's intention is to allocate 95% of the increased revenue to enhance the budget's financial position, resulting in a reduction of gross debt by A$87.2 billion and lowering interest payments by about A$12 billion over the next five years, concluding in 2026-27.

Nevertheless, the budget was initially projected to shift back into a deficit this year due to growing spending pressures, particularly in sectors such as healthcare, energy, and defense. Additionally, the combination of higher interest rates and a sluggish global economy has placed a burden on domestic demand.

Thursday saw a mixed bag of economic data from the United States. On one hand, the weekly Initial Jobless Claims showed a significant drop to the lowest level seen since January. Additionally, Existing Home Sales dipped to 4.04 million MoM in August, down from the prior figure of 4.07 million.

The Federal Reserve's decision to hold interest rates within the 5.25-5.50% range on Wednesday was in line with market expectations. Fed Chairman Jerome Powell emphasized the central bank's commitment to achieving a 2% inflation target in a press conference and indicated readiness to raise rates if deemed necessary.

While the U.S. dollar weakened slightly against a basket of currencies on Thursday, it remained near a six-month high. This strength was observed following the Federal Reserve's communication that U.S. monetary policy would remain restrictive for an extended period.

In addition, the financial landscape underwent a significant shift, marked by U.S. Treasury yields surging to levels not seen in over a decade on Thursday. This surge was primarily attributed to the Federal Reserve's announcement of an extended period of higher interest rates. This development signified the end of the era of historically low interest rates and had a pronounced impact on global markets.

On Thursday, both the 10- and 30-year Treasury yields increased by more than 10 basis points each, reaching 4.47% and 4.56%, respectively. These were the highest levels recorded since October 2007 and April 2011. Even the 2-year rate, which is sensitive to policy changes, approached 5.2%, nearing its highest level since July 2006. Furthermore, officials reduced the anticipated number of rate cuts for 2024 while raising their projections for the fed funds rate target by the end of 2025.

Looking ahead, market participants will closely monitor the preliminary U.S. S&P Global/CIPS PMI data for September. Traders will use these figures as signals for potential trading opportunities involving the AUD/USD pair. Hence, the anticipation is for the Australian dollar to consistently exhibit weakness compared to the US dollar, although there may be fluctuations in either direction influenced by forthcoming economic data releases.

Data for Technical Analysis (5H) CFD AUD/USD

Resistance : 0.6418, 0.6423, 0.6429

Support : 0.6406, 0.6401, 0.6395

5H Outlook     

Source: Investing.com

Buy/Long 1 If the support at the price range 0.6396 - 0.6406 is touched, but the support at 0.6406 cannot be broken, the TP may be set around 0.6421 and the SL around 0.6391, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 0.6418 - 0.6428, TP may be set around 0.6435 and SL around 0.6401, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 0.6418 - 0.6428 is touched, but the resistance at 0.6418 cannot be broken, the TP may be set around 0.6404 and the SL around 0.6433, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 0.6396 - 0.6406, TP may be set around 0.6390 and SL around 0.6423, or up to the risk appetite.       

Pivot Points Sep 22, 2023 02:34AM GMT

Sources: Investing , Fxstreet