Australian inflation and US durable goods orders data, AUD/USD holds ground at 0.6600.

• The Australian dollar (AUD) has shown some signs of recovery after hitting a fresh five-month low of 0.6614. However, the downside remains favored as the US Dollar Index (DXY) continues to show strength and negative market sentiment persists.
• Investors are worried about the interest rate guidance from the Federal Reserve (Fed), which has triggered a V-shaped recovery in the USD index from a weekly low of 101.20. The Fed is set to announce its monetary policy for May next week, with a 25 basis points (bps) interest rate hike expected. The street was earlier anticipating that the Fed would pause its quantitative tightening regime after this interest rate hike.
• The S&P500 settled Tuesday’s session on a bearish note, despite upbeat earnings from Microsoft and Google. Banking jitters renewed after First Republic Bank reported a sharp decline in customers’ deposits, requiring it to raise funds for disbursing loans. These events have triggered a risk aversion theme in the overall market.
• A further deceleration in Australian inflation will allow the Reserve Bank of Australia (RBA) to stick to its policy-tightening pause. The RBA has already decided to keep its policy rate unchanged at a record low of 0.10%. The RBA also hinted at continuing with its asset purchase program for longer than anticipated, as the employment data remains weak.
• Looking ahead, the US Durable Goods Orders data will be closely watched. The monthly Durable Goods Orders data for March is expected to expand by 0.8% versus a contraction of 1.0%. This data release could provide insight into the overall health of the US economy and its impact on the USD index.
• The AUD/USD pair is expected to remain under pressure due to the strength of the USD index and negative market sentiment. The AUD has been weighed down by concerns over the ongoing trade tensions between China and the US, which could negatively impact the Australian economy. The ongoing coronavirus pandemic has also impacted the Australian economy, with restrictions and lockdowns hurting economic activity.
• The RBA has recently stated that the ongoing lockdowns could result in a temporary decline in GDP growth in the June quarter, which could have a negative impact on the AUD. The RBA has also indicated that it will continue to support the economy and provide necessary stimulus until the recovery is secure.

In summary, the AUD/USD pair has shown some minor signs of recovery after hitting a fresh five-month low, but the downside remains favored due to the strength of the USD index and negative market sentiment. The upcoming US Durable Goods Orders data release could provide insight into the overall health of the US economy and its impact on the USD index. The ongoing trade tensions between China and the US, as well as the coronavirus pandemic, continue to weigh on the Australian economy and the AUD. The RBA has indicated that it will continue to provide necessary stimulus until the recovery is secure.

Capital Street FX