AUD/USD: four consecutive days of decline following data releases

• AUD/USD sustains bearish momentum, hovers near the psychological level of 0.6500.
• Core PCE  from the US rose to 4.7% in April.
• Australia’s Retail Sales rose 0.0% in April, falling short of expectations.

The AUD/USD continues its downward trend, currently trading at its year-low. However, this decline occurs amidst positive economic developments and hot Core PCE inflation from the US which made the market’s discount a higher likelihood of the Federal Reserve (Fed) hiking in the next meeting in June. On the other hand, the Australian Retail Sales from April data indicated no variation in sales levels compared to the previous period. Hence, the current data reported a stagnation.

Australia Retail Sales fall below expectations and markets price in a higher likelihood of a Fed rate hike

In April, the growth of Australian Retail Sales failed to meet expectations, remaining unchanged from March. This lackluster performance reflects the challenges faced by consumers due to the impact of rising interest rates and persistent inflation. With retail turnover falling short of the anticipated 0.2% increase, it indicates a period of stagnation in consumer spending over the past six months. Furthermore, the ongoing rise in the cost of living adds additional strain to consumers' budgets.

Adding to these challenges, the strength of the US Dollar has further contributed to the decline in the AUD/USD currency pair. Core PCE inflation from the US, an important gauge of inflation for the Federal Reserve (Fed), from April came in at 4.7% (YoY) vs the 4.6% expected and from its previous figure of 4.6%.

In that sense, following yesterday’s strong economic data and the hot inflation figures, the CME FedWatch Tool currently indicates a greater likelihood of the Federal Reserve raising interest rates by 0.25% on June 14 giving further support to the US Dollar.

Levels to watch

According to the daily chart, the AUD/USD maintains a bearish outlook in the short term, as indicated by the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), both suggesting that sellers are in control while the pair trades below its main moving averages.

In the event of a decline in the Aussie, immediate support levels are identified at the psychological level of 0.6500, followed by the zone around 0.6545 and the 0.6400 level. Conversely, if the AUD/USD manages to climb higher, the next resistance levels to monitor are at the 0.6540 zone, followed by the psychological level of 0.6600 and the 20-day Simple Moving Average at 0.6650.