Australian Dollar advances after the RBNZ policy decision

• The Australian Dollar gains ground following the appreciation in the New Zealand Dollar due to their geographical proximity.
• RBA Minutes suggested that the board had considered raising rates in May but opted to maintain a steady policy.
• The RBNZ maintained its rates at 5.5% for the seventh consecutive meeting as inflation remains above the 1-3% target band.
• FOMC Minutes are awaited on Wednesday, seeking clues about the Fed policy stance.

The Australian Dollar (AUD) recovered its recent losses on Wednesday following the appreciation in the New Zealand Dollar (NZD) after the Reserve Bank of New Zealand (RBNZ) maintained its Official Cash Rate (OCR) at 5.5%. Both currencies are closely related due to their geographical proximity and strong trade ties between Australia and New Zealand.

Investors continue to assess the outlook for the Reserve Bank of Australia (RBA) monetary policy. On Tuesday, the RBA Meeting Minutes suggested that the board had considered raising rates in May but ultimately decided to maintain a steady policy. Policymakers noted the difficulty in definitively ruling in or out future changes in the cash rate.

Australia's inflation rate was 3.6% year-over-year in Q1, down from 4.1% in the previous period but above market expectations of 3.4%. This indicates that inflation risks have somewhat increased, as highlighted in the minutes of the RBA's May policy meeting. The situation prompted the RBA to revisit discussions about a potential interest rate hike.

On the US Dollar (USD) front, traders await the release of the Minutes from the Federal Open Market Committee (FOMC) meeting held on May 1, which are due on Wednesday. They are seeking clues about the Federal Reserve’s (Fed) policy stance. The central bank maintains a cautious approach regarding inflation and the possibility of rate cuts in 2024.

Daily Digest Market Movers: Australian Dollar appreciates due to positive market sentiment

• The ASX 200 Index climbed to near 7,860 on Wednesday, led by gains in heavyweight mining stocks due to stronger metals prices. Australian shares also mirrored overnight gains on Wall Street, where the S&P 500 and Nasdaq Composite closed at new record highs of 5,321 and 16,832, respectively.
• Federal Reserve Bank of Boston President Susan Collins spoke at the event of "Central Banking in the Post-Pandemic Financial System" on Tuesday. Collins stated that progress toward interest rate adjustment will take longer and emphasized that patience is the right policy for the Fed, per Reuters.
• Federal Reserve Governor Christopher Waller stated on Tuesday that he needs to see several more months of favorable inflation data before he would be comfortable supporting an easing in policy.
• According to the CME FedWatch Tool, the probability of the Federal Reserve implementing a 25 basis-point rate cut in September has seen a slight uptick to 50.3%, compared to 49.6% a day ago.
• Australia’s Westpac Consumer Confidence fell 0.3% month-over-month in May, compared to a 2.4% decline in April. It was the third straight month of drop but the softest pace in this sequence.
• On Monday, the Chinese Commerce Ministry announced a prohibition on General Atomics Aeronautical Systems, a US company, from engaging in import and export activities related to China. This decision comes amid ongoing trade tensions between the United States and China. Any economic change in the Chinese economy could catalyze the Australian market as both nations are close trade partners.

Technical Analysis: Australian Dollar remains above a key level of 0.6650

The Australian Dollar trades around 0.6680 on Wednesday. The analysis of the daily chart suggests a bullish bias as the AUD/USD pair consolidates within the ascending triangle with the 14-day Relative Strength Index (RSI), remaining above the 50 level.

The AUD/USD pair could test the psychological level of 0.6700. A breakthrough above this level could lead the pair to test the four-month high of 0.6714, followed by the upper limit of the ascending triangle around the level of 0.6725.

On the downside, the nine-day Exponential Moving Average (EMA) at 0.6655, acting as the immediate support, aligned with the lower boundary of the ascending triangle around the key level of 0.6650. A break below this support could push the AUD/USD pair toward the psychological level of 0.6600.

AUD/USD: Daily Chart