Australian Dollar advances despite softer Aussie Retail Sales

■The Australian Dollar continues to gain ground due to improved risk appetite.

■Australia’s Retail Sales grew 0.1% in April, against the expected 0.2% and the previous decline of 0.4%.

■The US Dollar depreciates due to lower US Treasury yields.

The Australian Dollar (AUD) continues to strengthen against the US Dollar (USD) for the third consecutive session on Tuesday, despite the softer Australia's Retail Sales (MoM), which rose by 0.1% in April, reversing the previous 0.4% decline. This growth fell short of market expectations of 0.2%.

The AUD's strength is also reinforced by an improved risk appetite. Furthermore, the latest Reserve Bank of Australia (RBA) meeting minutes suggested that the board found it challenging to predict future changes in the cash rate, noting that recent data increases the likelihood of inflation remaining above the 2-3% target for an extended period.

The US Dollar (USD) continues to lose ground following the decline in the US Treasury yields. The US Dollar Index (DXY), which measures the value of the US Dollar against the six other major currencies, trades around 104.50 with 2-year and 10-year yields on US Treasury bonds standing at 4.94% and 4.46%, respectively, by the press time.

According to the CME FedWatch Tool, the probability of the Federal Reserve implementing a 25 basis-point rate cut in September has decreased to 44.9%, down from 49.6% a week earlier. On Tuesday, several US Federal Reserve (Fed) officials are scheduled to speak, including Fed Governor Michelle Bowman, Cleveland Fed President Loretta Mester, and Minneapolis Fed President Neel Kashkari.

Daily Digest Market Movers: Australian Dollar appreciates due to risk-on sentiment

China's Shanghai has announced measures to support the property sector, including reducing down payment requirements and lowering minimum mortgage rates. Additionally, China launched a US$47 billion state-backed fund on Friday to strengthen its semiconductor industry. Any economic changes in China could significantly impact the Australian market due to the close trade relationship between the two countries.

University of Michigan's 5-year Consumer Inflation Expectations for May on Friday, eased slightly to 3.0%, below the forecasted 3.1%. Despite the upward revision of the Consumer Sentiment Index to 69.1 from a preliminary reading of 67.4, it still marked the lowest level in six months.

The US Census Bureau released Durable Goods Orders on Friday, showing a solid recovery in April with a 0.7% month-over-month increase, compared to the forecasted 0.8% decline. However, March’s figure was revised down to 0.8% from the initial estimate of 2.6%.

On Thursday, Australian Consumer Inflation Expectation of future inflation over the next 12 months fell to 4.1% in May from 4.6% in April, marking the lowest level since October 2021.

The S&P Global US Composite PMI surged to 54.4 in May, marking the highest level since April 2022. The Service PMI rose to 54.8, indicating the biggest output growth in a year, while the Manufacturing PMI increased to 50.9.

Technical Analysis: Australian Dollar moves above the major level of 0.6650

The Australian Dollar trades around 0.6660 on Tuesday. Analysis of the daily chart indicates a bullish bias for the AUD/USD pair, as it is positioned within a rising wedge. The 14-day Relative Strength Index (RSI) is slightly above the 50 level, further confirming this bullish bias.

The AUD/USD pair could potentially reach a four-month high of 0.6714, followed by the upper limit of the ascending triangle around 0.6730.

On the downside, the 21-day Exponential Moving Average (EMA) at 0.6618 serves as key support, followed by the psychological level of 0.6600. A further decline could put downward pressure on the AUD/USD pair, potentially driving it toward the throwback support region at 0.6470.

AUD/USD: Daily Chart