Australian Dollar depreciates amid mixed Chinese data, stronger US Dollar

• The Australian Dollar extends its losses after mixed economic data from China on Friday.
• The Australian Dollar struggles as Australia’s 10-year bond yield has dropped to a monthly low of 4.2%.
• China’s Retail Sales increased for the consecutive 15th month but the softest gain in the sequence.
• The US Dollar has rebounded as the Fed remains cautious about inflation and potential rate cuts in 2024.

The Australian Dollar (AUD) continues to experience a decline for the second consecutive session, largely influenced by recent mixed economic data from China released on Friday. The Aussie Dollar had already been under pressure after Australia's employment figures released on Thursday presented a mixed picture. Any economic change in the Chinese economy could catalyze the Australian market as both nations are close trade partners.

The Australian Dollar’s decline is bolstered as the yield on Australia’s 10-year government bond has dropped to near 4.2%, marking its lowest level in a month. This decline in bond yields is a reaction to the domestic jobs report, which showed an unexpected slowing in wage growth during the first quarter. The slowing wage growth has led markets to discount the possibility of any interest rate hikes by the Reserve Bank of Australia (RBA).

The US Dollar Index (DXY), which gauges the performance of the US Dollar (USD) against six major currencies, has rebounded from a multi-week low of 104.08 marked on Thursday. The Federal Reserve (Fed) maintains a cautious stance regarding inflation and the potential for rate cuts in 2024. Investors will take more cues from the Minneapolis Fed President Neel Kashkari and San Francisco Fed President Mary Daly's speeches later in the day.

Daily Digest Market Movers: Australian Dollar depreciates after mixed Chinese data

• China's Retail Sales increased 2.3% year-over-year in April, down from March's 3.1% and falling short of the expected 3.8%. This marks the 15th consecutive month of growth in retail activity but represents the slowest uptick in this trend. Meanwhile, Industrial Production improved 6.7% YoY, surpassing the anticipated 5.5% and the previous recording of 4.5%.
• On Thursday, Fed Bank of Atlanta President Raphael Bostic emphasized the need for patience with interest rates, noting that substantial pricing pressure persists in the US economy. Additionally, Cleveland Fed President Loretta Mester indicated that it might take longer than anticipated to confidently ascertain the inflation trajectory, suggesting that the Fed should maintain its restrictive stance for an extended period.
• Australia’s Wage Price Index (QoQ) increased by 0.8% in the first quarter, falling short of the market's forecast of a 0.9% rise. This quarter's increase is the smallest since late 2022. Additionally, annual pay growth slowed slightly to 4.1%, down from the previous 4.2%, and below market expectations.
• Sarah Hunter, Chief Economist and Assistant Governor (Economic) at the Reserve Bank of Australia (RBA), delivered a speech at the REIA Centennial Congress on Thursday. During her address, Hunter explored various potential strategies to address the imbalance between housing supply and demand growth. This issue looms large in Australia, with escalating prices, rents, and homelessness posing significant challenges.
• 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.
• 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.
• 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 falls toward 0.6650

The Australian Dollar trades around 0.6660 on Friday. Observing the daily chart for AUD/USD showed an ascending triangle formation. Additionally, the 14-day Relative Strength Index (RSI) suggests a bullish sentiment, holding above the 50 mark.

The AUD/USD pair could challenge the upper threshold of the ascending triangle, resting near the four-month peak of 0.6714. A breach above this level might prompt exploration toward the significant barrier at 0.6750.

Conversely, potential support stands at the nine-day Exponential Moving Average (EMA) at 0.6634, followed by the lower boundary of the ascending triangle around at 0.6610. A breakdown below this level could exert downward pressure, directing attention toward the throwback support at 0.6550.

AUD/USD: Daily Chart