Australian Dollar retreats from four-month highs after higher Unemployment Rate

• The Australian Dollar loses ground due to dovish sentiment surrounding RBA’s policy stance.
• The Australian Unemployment Rate increased to 4.1% in April, from the previous reading of 3.9%.
• The US Dollar lost ground after the release of the lower CPI and Retail Sales data on Wednesday.

The Australian Dollar (AUD) snapped its three-day winning streak after the higher-than-expected Aussie Unemployment Rate on Thursday, which rose to 4.1% in April, from the previous reading of 3.9%. Australia’s 10-year government bond yield traded lower around 4.2% after Australia’s Wage Price Index (QoQ) showed a 0.8% increase in the first quarter, falling slightly below the anticipated rise of 0.9%. These figures have supported a dovish sentiment surrounding the Reserve Bank of Australia (RBA) regarding monetary policy.

The Australian Dollar received support during the early hours on Thursday due to the improved risk appetite following lower-than-expected monthly Consumer Price Index and Retail Sales data in the United States (US) released on Wednesday. This has supported the probability of multiple rate cuts by the Federal Reserve (Fed) in 2024, undermining the US Dollar (USD). The AUD/USD pair has marked a four-month high of 0.6714 on Thursday.

The US Dollar Index (DXY), which gauges the performance of the US Dollar (USD) against six major currencies, extends its losses for the consecutive third session. The decline in the US Treasury yields is weakening the Greenback, which could be attributed to the possibility that the Fed may initiate cutting interest rates from September.

Daily Digest Market Movers: Australian Dollar depreciates due to higher Unemployment data

• US Consumer Price Index (CPI) decelerated to 0.3% month-over-month in April, came in at lower than expected 0.4% reading. While Retail Sales flattened, falling short of the expected increase of 0.4%.
• On Tuesday, the Australian Budget for 2024-25 returned to a deficit after recording a surplus of $9.3 billion in 2023-24. The Australian government aims to tackle headline inflation and alleviate the cost of living pressures by allocating billions to reduce energy bills and rent, alongside initiatives to lower income taxes.
• The US Bureau of Labor Statistics (BLS) reported that the Producer Price Index (PPI) increased by 0.5% month-over-month in April, surpassing the forecast of 0.3% and rebounding from March's contraction of -0.1%. The Core PPI, which excludes volatile food and energy prices, also surged by 0.5% MoM, exceeding projections of 0.2%.
• A Reuters report cited Treasurer of Australia Jim Chalmers, expressing his expectation that the current headline inflation rate of 3.6% will return to the Reserve Bank of Australia’s target range of 2-3% by the end of the year. If this scenario unfolds, the central bank will likely consider cutting interest rates earlier than markets had anticipated.
• As per a Reuters report, China's finance ministry plans to start raising 1 trillion Yuan in issuing 20 to 50 years bonds for larger stimulus measures. China is also contemplating a plan for local governments nationwide to purchase millions of unsold homes. These developments have bolstered the Aussie Dollar, given the close trade ties between Australia and China, where any shifts in the Chinese economy catalyze the Australian market.
• Federal Reserve Chair Jerome Powell has anticipated a continued decline in inflation on Tuesday. Powell expressed less confidence in the disinflation outlook compared to previous assessments. He also highlighted that Gross Domestic Product (GDP) growth is expected to reach 2% or higher, attributing this positive forecast to the strength of the labor market.

Technical Analysis: Australian Dollar moves below 0.6700

The Australian Dollar trades around 0.6680 on Thursday. The AUD/USD pair lies in an ascending triangle on a daily chart. Moreover, the 14-day Relative Strength Index (RSI) indicates a bullish bias, remaining above the 50 level.

The AUD/USD pair may challenge the upper boundary of the ascending triangle around the four-month high of 0.6714. A breakthrough above this level could lead the pair to explore the area around the major level of 0.6750.

On the downside, the key support appears at the nine-day Exponential Moving Average (EMA) at 0.6627, followed by the ascending triangle’s lower boundary around the level of 0.6610. A break below this level could put pressure on the AUD/USD pair to navigate the region around the major support at 0.6558.

AUD/USD: Daily Chart