Australian Dollar rebounds as Aussie 10-year yields hit monthly highs

• The Australian Dollar gains ground as the Aussie 10-year Government Bond Yield reaches a four-week high of 4.52%.
• Australia’s Private Capital Expenditure rose 1.0% in Q1, surpassing the expected 0.5% rise.
• The US Dollar’s strength is reinforced as Treasury yields appreciate on risk aversion.

The Australian Dollar (AUD) rebounded on Thursday, possibly driven by the Australian 10-year Government Bond Yield increase to a four-week high of 4.52%. This shift reflects investor sentiment that the Reserve Bank of Australia (RBA) will maintain higher interest rates for longer. Additionally, the AUD might gain ground as one of its largest trading partners, China, has lifted bans on beef shipments from five major Australian meat producers.

Australia's Monthly Consumer Price Index, released on Wednesday, showed robust figures that could prompt the RBA to consider another rate hike. The minutes from the RBA's May policy meeting suggested that the central bank had contemplated a potential interest rate increase.

The US Dollar Index (DXY), which measures the USD against six major currencies, trades higher around 105.10, with 2-year and 10-year US Treasury yields at 4.98% and 4.61%, respectively, at the time of reporting. Risk aversion sentiment supports the US Dollar (USD), limiting the advances of the AUD/USD pair.

On Wednesday, the Fed Beige Book report covering the period from April to mid-May showed that national economic activity experienced slight growth, with mixed conditions across industries and districts. The report also indicated that employment rose slightly, wage growth was moderate, and prices increased modestly as consumers resisted further price hikes.

Daily Digest Market Movers: Australian Dollar appreciates as RBA’s Hunter concerns about inflation

• RBA Assistant Governor (Economic) Sarah Hunter stated that they concur with the Treasury's inflation forecast. The CPI data indicates strength in certain price sectors. The RBA Board is clearly concerned about inflation remaining above the target range, suggesting persistent inflationary pressure. Wages growth appears to be near its peak.
• According to the CME FedWatch Tool, the likelihood of the Federal Reserve implementing a 25 basis-point rate cut in September decreased to 41.7%, down from 49.4% a week earlier.
• Australia’s Monthly Consumer Price Index rose 3.6% year-over-year in April, surpassing the expected reading of 3.4% and the previous reading of 3.5%.
• On Tuesday, Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, suggested that a rate hike might still be possible. Kashkari stated, “I don’t think anybody has totally taken rate increases off the table,” and expressed uncertainty about the disinflationary process, predicting only two rate cuts, per MSN.
• US Housing Price Index (MoM) for March was underperforming, with March's number coming in at 0.1% against 1.2% for February, where 0.5% was expected.
• Australia's Retail Sales (MoM) rose by 0.1% in April, swinging from the previous 0.4% decline. This growth fell short of market expectations of 0.2%.

Technical Analysis: Australian Dollar could test the key level of 0.6600

The Australian Dollar trades around 0.6610 on Thursday. An analysis of the daily chart suggests the weakening of a bullish bias for the AUD/USD pair, as it has broken below the lower boundary of a rising wedge. The 14-day Relative Strength Index (RSI) is positioned on the 51 level, further decline may confirm the momentum shift.

The AUD/USD pair could potentially move back into the rising wedge to target the four-month high of 0.6714, followed by the upper limit of the rising wedge around 0.6740.

On the downside, the immediate support appears at the psychological level of 0.6600, followed by the 50-day Exponential Moving Average (EMA) at 0.6584. A further decline could exert downward pressure on the AUD/USD pair, potentially driving it toward the throwback support region at 0.6470.

AUD/USD: Daily Chart