empty
11.05.2023 01:11 PM
AUDUSD: Attempt to break the downward trend turned to fiasco

When a currency ignores the negatives and rises sharply on the positives, there is a sense that it is ready to break the downward trend. Good news from the Australian labor market, rumors that the Reserve Bank will continue the monetary restriction cycle, support from iron ore, and stability of the Chinese yuan allowed AUD/USD to soar above 0.67. Meanwhile, the pair grew faster after the Fed's May meeting and U.S. inflation statistics than it fell on American employment. Is it really ready to change the trend?

Record low Australian unemployment rates, the first local budget surplus since 2008, and an unexpected resumption of a cash rate increase in May after a pause in April breathed new life into the "Aussie." According to materials presented for Bloomberg, the RBA considered options for increasing borrowing costs to 4.8%, significantly higher than the current 3.85%. In two out of three scenarios, such a high level of cash rate was foreseen to return excessively high inflation to target. This would make the Reserve Bank almost the leading "hawk" among the G10 currency issuers.

Dynamics of Central Banks' base rates

This image is no longer relevant

However, it is unlikely that Reserve Bank Governor Philip Lowe and his colleagues are ready to go that far. Inflation is starting to slow down. This is a global trend. The Fed is ready to stop monetary restriction, fearing a recession. The RBA faces the specific risk of breaking something. In my opinion, May's cash rate hike is the penultimate, if not the last. The market is overestimating the Reserve Bank's capabilities.

The same can be said regarding China's economy, Australia's main trading partner. Investors believed that its rapid recovery after COVID-19 would become a catalyst for strengthening the yuan and related proxy currencies. However, the stability of USD/CNY is deceptive. It is more related to the weakening of the U.S. dollar than to the strength of the yuan. The trade-weighted exchange rate of the Chinese currency continues to decline. This indicates an overestimation of the potential for recovery of the Chinese economy.

Dynamics of the trade-weighted yuan index

This image is no longer relevant

The rebound of iron ore, a key component of Australian exports, from its lowest level since the start of 2022, should be viewed with a degree of skepticism. Yes, in April, the import of this raw material increased by 5% to 90.44 million tons, but the "bearish" trend remains in force. And this creates headwinds for the "Aussie."

This image is no longer relevant

Thus, the Australian dollar's trump cards are not as strong as they seem. Meanwhile, its American counterpart is gradually spreading its wings due to the Fed's firm intention to keep the federal funds rate at a plateau, at least until the end of the year. The market did not believe this and paid the price.

Technically, a Broadening Wedge pattern formed on the AUD/USD daily chart. The formation of rising highs and lows speaks of a fierce battle between "bulls" and "bears." Although, it seems that the sellers are winning. The pair's inability to return above 0.6755 is a reason to open shorts.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

GBP/JPY. Analysis and Forecast

Following the release of UK consumer inflation data, which came in above expectations, the GBP/JPY pair slightly pared back its intraday losses. However, it failed to attract significant buying interest

Irina Yanina 11:25 2025-05-21 UTC+2

Will Global Central Banks Continue to Cut Interest Rates? (Bitcoin May Resume Growth and USD/JPY May Decline)

Among the economically developed nations—those that belong to the Western wing of the global economy—there is an important rule: a target of 2% inflation, specifically consumer inflation. Achieving this target

Pati Gani 09:46 2025-05-21 UTC+2

Market: Do or Die!

Markets can remain irrational longer than you can remain solvent. The S&P 500 rally from the April lows—adding $8.6 trillion in market cap—often appeared irrational. Investors ignored the Federal Reserve's

Marek Petkovich 08:23 2025-05-21 UTC+2

GBP/USD Overview – May 21: The Rollercoaster Continues

On Tuesday, the GBP/USD currency pair declined, unlike on Monday. While the euro's movement required searching for reasons behind the dollar's drop, the technical picture for the pound is straightforward

Paolo Greco 07:46 2025-05-21 UTC+2

EUR/USD Overview – May 21: The Theater of Chaos and Absurdity Continues

The EUR/USD currency pair moved sluggishly on Tuesday, which was not surprising given the absence of news. Monday didn't bring much in the way of important news either

Paolo Greco 07:46 2025-05-21 UTC+2

What to Pay Attention to on May 21? A Breakdown of Fundamental Events for Beginners

Very few macroeconomic events are scheduled for Wednesday. However, the UK inflation report holds significant importance for the market, or rather, used to . As we can see, traders continue

Paolo Greco 06:45 2025-05-21 UTC+2

The Fed Maintains a Wait-and-See Approach

The market expects active measures from the U.S. central bank, while Donald Trump keeps demanding that Jerome Powell cut interest rates. It's worth noting that Powell cannot make such decisions

Chin Zhao 00:41 2025-05-21 UTC+2

The Dollar Regains Its Spirit

As the CFTC report showed, investors are still not very impressed that the US and China have managed to reduce trade tensions and take a pause for negotiations

Kuvat Raharjo 00:26 2025-05-21 UTC+2

EUR/USD: Weak Dollar Meets Indecisive Euro

The EUR/USD pair has consolidated above the 1.1200 level, reflecting the overall weakening of the U.S. dollar. The "bearish attack" we witnessed last week ended in failure. EUR/USD sellers were

Irina Manzenko 19:35 2025-05-20 UTC+2

Euro Exhausts Bullish Momentum

Inflation in the eurozone remained unchanged in April compared to March, fully in line with forecasts—2.2% year-over-year for the headline index, and 2.7% year-over-year for the core index. This inflation

Kuvat Raharjo 19:16 2025-05-20 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.