Australian Dollar bounces back from eight-week lows amid a firmer US Dollar

• Australian Dollar gains ground amid an escalated geopolitical tension in the Middle East.
• Australian currency could face challenges following the lower ASX 200 Index.
• US Dollar receives support as traders express concerns about a potential reaction from Israel following Iran's attack.

The Australian Dollar (AUD) rebounds on Monday from the eight-week low of 0.6456 reached last Friday. However, the AUD/USD pair encountered obstacles as traders sought refuge in the US Dollar (USD) amidst heightened tensions in the Middle East.

The Australian Dollar may encounter further challenges as the ASX 200 Index declined, reflecting investor concerns about a possible retaliatory response from Israel to Iran's attack on Saturday. Iran deployed explosive drones and missiles targeting military sites in Israel, with Israel reportedly intercepting nearly all of the incoming projectiles, as per Reuters' report.

The US Dollar Index (DXY) edges lower following the subdued US Treasury yields, despite the hawkish sentiment surrounding the Federal Reserve’s (Fed) monetary policy outlook. Strong US inflation and positive macroeconomic indicators are causing the Fed to reassess its stance on monetary easing. Market participants are expected to closely watch the US Retail Sales figures due to be released on Monday, along with Fedspeak.

Daily Digest Market Movers: Australian Dollar rebounds amid a hawkish sentiment surrounding Fed

• Australia’s Consumer Inflation Expectations released on Thursday, showed an increase of 4.6% in April against the previous increase of 4.3%.
• Australian labor market data is due on Thursday, including seasonally adjusted Employment Change and Unemployment Rate for March.
• As anticipated, the People's Bank of China (PBoC) maintained the 1-year medium-term lending facility (MLF) interest rate at 2.5%. The PBoC injected 100 billion Yuan through a one-year MLF operation, resulting in a net drain of 70 billion Yuan.
• Chinese Gross Domestic Product (GDP) and Industrial Production data are scheduled to be released on Tuesday.
• Boston Federal Reserve (Fed) President Susan Collins stated on Friday that she foresees 'approximately two' rate cuts for 2024, while also expecting inflationary pressures to ease later in the year. She emphasized that while a rate hike is not currently included in the baseline scenario, it cannot be completely discounted.
• According to the CME FedWatch Tool, the likelihood of interest rates remaining unchanged in the June meeting has been increased to 63.5% from the previous week of 46.8%.
• US Michigan Consumer Sentiment Index decreased to 77.9 in April, from the previous reading of 79.4 and market expectation of 79.0.
• Core US Producer Price Index (PPI) report showed on Friday, an increase of 2.4% YoY in March. The market was expecting a rise to 2.3% from 2.1% prior.

Technical Analysis: Australian Dollar remains above 0.6450; next barrier at 23.6% Fibo level

The Australian Dollar trades around 0.6480 on Monday. Technical analysis suggests a bearish sentiment for the AUD/USD pair as the Moving Average Convergence Divergence (MACD) is positioned below the centerline and shows a divergence below the signal line. Key support appears at the major level of 0.6450. A break below this level could prompt the pair to navigate the region around the psychological level of 0.6400. On the upside, the AUD/USD pair could find resistance around the psychological level of 0.6500, aligned with the 23.6% Fibonacci retracement level of 0.6501. A breakthrough above the latter could lead the pair to test the 14-day Exponential Moving Average (EMA) at 0.6535, followed by the major barrier at 0.6550.

AUD/USD: Daily Chart