The Australian Dollar (AUD) weakened against the US Dollar (USD) as markets anticipated the Reserve Bank of Australia’s (RBA) decision next week. Despite strong labor market data from Australia earlier in the week, the USD continued to strengthen due to the Federal Reserve’s projection of higher interest rates. The Australian economic calendar was empty on Friday, with the USD only experiencing minimal intraday losses despite soft University of Michigan (UoM) figures.
The RBA has shown signs of weakness in the Australian economy, but high inflation levels have prompted the RBA to delay rate cuts, limiting the AUD’s decline. The RBA is set to meet next Tuesday, and investors are eagerly awaiting further clues. The market is currently pricing in the first rate cut for May 2025, but there are risks skewed towards an earlier start.
Although no significant highlights were observed from the Australian economy on Friday, consumer confidence in the US deteriorated with the University of Michigan’s Consumer Sentiment Index dropping to 65.6 from 69.1 in May. The Current Conditions Index and the Consumer Expectations Index also saw declines. Despite this, the one-year inflation expectation remained stable at 3.3%, while the five-year inflation outlook rose to 3.1% from 3%.
Technical analysis of the AUD/USD pair shows that sellers persist as the Relative Strength Index (RSI) is below 50 and moving downwards, indicating negative momentum. The Moving Average Convergence Divergence (MACD) suggests persistent selling pressure. The short-term outlook has turned negative as the pair fell below the 20-day Simple Moving Average (SMA). If this trend continues, the 100 and 200-day SMAs could act as barriers around the 0.6560 area.
The Reserve Bank of Australia (RBA) plays a crucial role in setting interest rates and managing monetary policy for Australia. By making decisions at 11 meetings a year, the RBA aims to maintain price stability, currency stability, full employment, and economic prosperity for the Australian people. Tools such as raising or lowering interest rates, quantitative easing, and quantitative tightening are utilized to achieve these goals.
In conclusion, while the AUD weakened against the USD due to market anticipation of the RBA’s decision, various economic factors continue to influence the currency pair’s movements. Investors should closely monitor upcoming RBA announcements and economic indicators to make informed decisions regarding the AUD/USD pair.