• Sun. Jun 23rd, 2024

AUD/USD Goes Down Because US Yields Are High and the Fed Is Being Tough

Leon Kramer

ByLeon Kramer

May 16, 2024
AUD/USD Goes Down Because US Yields Are High and the Fed Is Being Tough

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  • The Australian Dollar is currently trading at 0.6678, experiencing a decrease of 0.23%. This decline can be attributed to the impact of higher US yields.
  • Unemployment claims increase, housing data fluctuates, and industrial production comes to a halt.
  • Federal officials indicate that there may be a continuation of higher interest rates. At the same time, the Australian jobs report reveals a combination of outcomes, with the unemployment rate being adjusted to 4.1%.

Due to the strengthening of US yields, which provided support for the Greenback throughout the day, the Australian Dollar (AUD) experienced a decline of 0.23% against the US Dollar on Thursday. This decline occurred in relation to the US Dollar. Wall Street reached historically high levels before experiencing a decline, which ultimately resulted in the session coming to a close with losses. The Australian dollar to United States dollar exchange rate is currently trading at 0.6678 at the beginning of the Asian session on Friday.

AUD/USD Goes Down as US Yields Rise and Traders Guess That the Federal Reserve Might Loosen Policy

As speculation persists that the Federal Reserve might join the group of central banks contemplating policy easing, the sentiment among traders continues to be optimistic. The most recent report on consumer inflation in the United States, released on Wednesday, has increased the likelihood that the Federal Reserve will potentially reduce interest rates by at least 41 basis points by the time 2024 comes to a close.

It was higher than expected, but it was lower than the previous week’s total of 232 thousand people who filed for unemployment benefits. The number of people who filed for benefits for the previous week increased to 222 thousand on Thursday. 

According to the additional information provided, the housing market exhibited a mix of positive and negative trends. The number of housing starts increased by 5.7% compared to the previous year, while the number of building permits experienced a significant decrease of around 3%.

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Additionally, the Federal Reserve reported that Industrial Production came to a halt in April, with no change from the previous month. This was a significant development. Despite the slight increase of 0.1% seen in the previous month, this figure did not meet the expectations that were set.

In the meantime, a large number of Federal Reserve officials voiced their opinions on Thursday, suggesting that the central bank ought to keep interest rates at higher levels for an extended period while they wait for additional evidence of a slowdown in inflation. Specifically, Loretta Mester, John Williams, and Thomas Barkin, who are the presidents of the Federal Reserve’s regional banks, have expressed the opinion that it may take more time than they initially anticipated to achieve their target of 2% inflation.

Regarding the Australians’ situation, the most recent employment report revealed that the economy gained 38.5K jobs in April. However, the unemployment rate was revised from 3.9% to 4.1%. The majority of the jobs that were added consisted of part-time positions, with the number increasing by 44.6 K. This helped to balance out the decrease in full-time employment, which saw a decline of -6.1 K.

According to ANZ analysts, the decline in hours worked and the slowdown in annual wage growth, as indicated by the Wage Price Index, provide further evidence of a weakening labor market. Based on this data, our perspective on the RBA remains unchanged.

Prior to the upcoming week, Australia’s schedule is devoid of any significant events, whereas the United States’ agenda will include additional speeches from the Federal Reserve, with Governor Christopher Waller taking the lead.

Technical Analysis

The AUD/USD uptrend continues, although it temporarily halted after surpassing the 0.6700 level. Despite the current momentum favoring the bulls, as indicated by the Relative Strength Index (RSI), a potential decline below the low point of 0.6654 on Thursday could worsen and lead to a further drop toward the low point of 0.6579 on May 14.

Alternatively, should buyers reclaim the level of 0.6700, it may open up the possibility of testing the high end of this week at 0.6714 before potentially facing resistance at 0.6750.

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Leon Kramer

Leon Kramer

Leon Kramer, a renowned financial author, enlightens Main Forex News readers with his deep understanding of currency markets. His years in global finance, combined with an intuitive grasp of trends, delivers insightful, up-to-the-minute foreign exchange analysis.

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