Australian Dollar appreciates despite lower GDP Q1

• The Australian Dollar appreciates after the release of the lower-than-expected GDP data on Wednesday.
• Australia's GDP grew 0.1% QoQ in the first quarter, falling short of the expected 0.2% reading.
• The US Dollar could rebound due to the higher US Treasury yields.

The Australian Dollar (AUD) gains ground following the lower-than-expected Gross Domestic Product data, which grew 0.1% QoQ in the first quarter, against the expected 0.2% reading. On an annual basis, the economy grew 1.1%, slightly below the expected 1.2%. The AUD/USD pair received pressure as the Judo Bank Purchasing Managers Index (PMI) came in at 52.5, lower than the expected reading of 53.1 for May.

The Reserve Bank of Australia (RBA) Governor Michele Bullock stated on Wednesday that she anticipates GDP growth for the first quarter to be quite low. Bullock also emphasized that the central bank is prepared to take action if the Consumer Price Index (CPI) does not return to the target range, as reported by NCA NewsWire.

The US Dollar (USD) could rebound due to the upward correction in US Treasury yields. The USD weakened on the back of rising speculation of an interest rate cut by the Federal Reserve (Fed) this year. Investors await the key US data releases later on Wednesday, including the US ADP Employment Change and ISM Services PMI reports.

Daily Digest Market Movers: Australian Dollar appreciates despite softer economic growth

• The Judo Bank Composite PMI recorded a reading of 52.1 in May, a slight decrease from 53.0 in April. This shows that Australia's private sector output continued to grow for the fourth consecutive month, though at a slower rate.
• Caixin China Services PMI came in at 54 in May, exceeding the expected 52.6 and 52.5 prior.
• Australia reported on Tuesday, a current account deficit of A$4.9 billion (USD 3.2 billion) in the first quarter, marking a significant shift from a downwardly revised surplus of A$2.7 billion in the previous quarter. This result missed market expectations, which had anticipated a surplus of A$5.9 billion.
• The ISM Manufacturing PMI unexpectedly dropped to 48.7 in May, down from April's reading of 49.2 and below the forecast of 49.6. The US manufacturing sector experienced its second consecutive month of contraction, marking 18th in the last 19 months.
• Australia’s Judo Bank Manufacturing PMI was released on Monday, edging up slightly to 49.7 in May from 49.6 in April, marking the fourth consecutive month of declining conditions in the manufacturing sector.
• On Monday, the Caixin China Manufacturing PMI rose to 51.7 in May from 51.4 in April, marking the seventh consecutive month of expansion in factory activity and surpassing the estimates of 51.5. Friday’s NBS PMI data showed that manufacturing activity fell to 49.5 in May from 50.4 in April, missing the market consensus of an increase to 50.5. Meanwhile, the Non-Manufacturing PMI declined to 51.1 from the previous reading of 51.2, falling short of the estimated 51.5.
• Last week, Atlanta Fed President Raphael Bostic remarked in an interview with Fox Business that he doesn't believe further rate hikes should be required to reach the Fed's 2% annual inflation target. Additionally, New York Fed President John Williams stated that inflation is still too high but should moderate over the second half of 2024. Williams doesn't feel the urgency to act on monetary policy, per Reuters.

Technical Analysis: Australian Dollar hovers around 0.6650

The Australian Dollar trades around 0.6650 on Wednesday. A daily chart analysis indicates a bullish bias for the AUD/USD pair, as it remains within a rising wedge pattern. Additionally, the 14-day Relative Strength Index (RSI) is slightly above the 50 level, reinforcing this bullish bias.

The AUD/USD pair could potentially target the psychological level of 0.6700, followed by the four-month high of 0.6714 and the upper limit of the rising wedge around 0.6750.

On the downside, immediate support is seen at the 21-day Exponential Moving Average (EMA) at 0.6632, followed by the lower boundary of the rising wedge and the psychological level of 0.6600. A further decline could exert pressure on the AUD/USD pair, potentially pushing it toward the throwback support region at 0.6470.

AUD/USD: Daily Chart