Aussie storms past 70 line

The Australian dollar has extended its gains on Tuesday. In the European session, AUD/USD is trading at 0.7034, up 0.93% on the day.

Australian dollar recovers

After falling to a June 2020 low late last week, the Australian dollar has stormed back with a gain of 230 points since Thursday. The Aussie has benefited from weak US numbers as well as the RBA minutes. Earlier in the day, the Empire State Manufacturing Index plunged to -11.6, down from 24.6 and below the forecast of 17.0 points.

US consumer confidence numbers on Friday were a disappointment. UoM Consumer Sentiment dropped to 59.2, down from 65.0 and shy of the estimate of 64.0 points. The index fell to its lowest level since October 2011. Just one year ago, the index was at a lofty 82.8, indicative of a massive erosion in the confidence levels of the US consumer.

Consumers have become pessimistic about current and future expectations, and inflation expectations remained at 5.4% for a third straight month, a 40-year high. If the deterioration in consumer confidence spills over to consumer spending, economic activity will weaken.

The RBA minutes of the May meeting were significant, as they highlighted the discussions ahead of the RBA’s decision to hike rates by 0.25%. RBA Governor Lowe called the move a return to “business as usual”, but it turns out that policy makers considered a supersize 40-bps increase, given the “upside risks to inflation and the current very low level of interest rates”, according to the minutes.

In the end, the RBA went with the more moderate 0.25% increase, but the fact that a 40-bps move was discussed means that it is still on the table, even if it is not the likeliest move at the June meeting. Still, the odds of a 40-bps move will certainly increase if either today’s wage price index or Wednesday’s employment report are stronger than expected. If the data is stronger than expected, I would expect the Australian dollar to gain ground.

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AUD/USD Technical

  • 0.7064 is under pressure in support. Above, there is resistance at 0.7189
  • There is support at 0.6946 and 0.6821

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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