Chart of The Day

  • The Australian Dollar higher volatility is caused by concerns about Chinese data and RBA minutes
  • Chinese data revealed weaker-than-expected industrial production, retail sales, and investment activity
  • The Reserve Bank of Australia (RBA) minutes revealed a divided vote regarding a 25 basis points (bp) rate hike

The Australian Dollar (AUD) experienced a decline as doubts arose regarding China’s economic recovery. The latest statistics unveiled a slowdown in activity, with industrial production growing at 5.6% year-over-year until April, falling short of the forecasted 10.9% and below March’s 3.9%. Similarly, retail sales for the same period reached 18.4%, missing the expected 21.9% and the previous 10.6%. The AUDUSD initially tested 0.6700 level due to a weaker US Dollar but finally regained due to growing concerns about China, which is Australia’s primary export partner.

In light of the Chinese data, the RBA meeting minutes revealed that the decision to raise rates at the May meeting was delicately balanced. Two options were discussed: keeping the cash rate unchanged or increasing it by 25 basis points. The argument for maintaining rates unchanged was primarily based on the recent decline in inflation, which dropped from 7.8% at the end of December to 7.0% year-on-year until the end of March. On the other hand, the perspective of hiking rates was argumented by the possibility of inflation reacceleration, thereby prolonging the period in which CPI remains above the target range of 2-3%. The RBA’s current projections indicate that this target will be met by mid-2025.

AUDUSD pair is trading at 0.6685 and the Australian dollar is appreciating. The price was rejected from a resistance zone around 0.6700, as indicated by the marked red zone. Since the beginning of March, the price has been consolidating within a range between 0.6570 and 0.6780. Rejection from the 0.6700 level suggests a potential test of the support line at 0.6640. If the price continues to decline, it could find support at this level.

Traders should closely monitor the price action around the 0.6640 support level to assess whether it holds or breaks. A decisive break below this support level could indicate further downward momentum, potentially targeting lower support areas. Conversely, if the support at 0.6640 holds, the price may attempt to retest the resistance zone around 0.6700.

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