• The Australian dollar is losing value as investors remain cautious ahead of the US GDP release on Thursday.
• The yield on 10-year Australian government bonds hit a four-week high of 4.52%.
• The US dollar remains stable as Treasury yields rise due to risk aversion.

The Australian dollar (AUD) widened its losses, likely as investors adopted a cautious stance ahead of the release of annual US gross domestic product (Q1) data on Thursday and personal consumption expenditure (PCE) price index data on Friday. These data events are expected to provide insight into the Federal Reserve’s potential stance on interest rate adjustments.

The Australian dollar may limit its losses with the yield on 10-year Australian government bonds rising to a four-week high of 4.52%. This change reflects investor sentiment that the Reserve Bank of Australia (RBA) will keep interest rates higher for longer. Additionally, according to Bloomberg, the AUD may gain strength as one of its largest trading partners, China, has lifted bans on beef shipments from five major Australian meat producers.

The Australian monthly consumer price index released on Wednesday showed solid data that could prompt the RBA to consider another interest rate hike. Minutes from the RBA’s May policy meeting suggested the central bank was considering a potential interest rate boost.

The U.S. Dollar Index (DXY), which measures the U.S. dollar against six major currencies, is trading higher at around 105.10 at the time of reporting, with the 2-year and 10-year U.S. Treasury yields at 4.98%, respectively. and 4.61%. Risk aversion sentiment is supporting the US dollar (USD), limiting the rise of the AUD/USD pair.

On Wednesday, the Fed’s Beige Book report, covering the period from April to mid-May, showed that economic activity in the country saw modest growth, with conditions varying across industries and counties. The report also indicated that employment increased slightly, wage growth was moderate and prices rose slightly due to consumer resistance to further price increases.

Daily Digest Market moves: Australian dollar gains after RBA’s Hunter expresses inflation concerns

• Private capital spending in Australia increased by 1.0% in the first quarter, beating expectations for growth of 0.5% and exceeding the previous quarter’s growth of 0.9%.
• According to a Bloomberg report, RBA deputy governor Sarah Hunter told a conference in Sydney on Thursday that “inflationary pressures” were a key issue. “We remember it very much.” Hunter also said the RBA Board is concerned about inflation remaining above its target range of 1%-3%, which suggests persistent inflationary pressures. Wage growth appears to be near its peak.
• According to Bloomberg, Federal Reserve Bank of Atlanta President Raphael Bostic said on Wednesday that the inflation path is expected to be uneven and that narrowing its width will strengthen confidence in the need to cut interest rates.
• According to the CME FedWatch Tool, the likelihood of the Federal Reserve cutting interest rates by 25 basis points in September fell to 41.7%, down from 49.4% the week before.
• Australia’s monthly consumer price index rose 3.6% year-on-year in April, topping the expected reading of 3.4% and the previous reading of 3.5%.
• On Tuesday, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, suggested that an interest rate hike was still possible. Kashkari stated, “I don’t think anyone will reject interest rate increases” and expressed uncertainty about the disinflation process, predicting only two interest rate cuts, according to MSN.
• The housing price index (m/m) in the US performed worse, and the March index amounted to 0.1% compared to 1.2% in February, where it was expected to be 0.5%.
• Australian retail sales (m/m) rose 0.1% in April, deviating from the previous decline of 0.4%. This growth was lower than market expectations of 0.2%.

Technical analysis: The Australian dollar may test the key level of 0.6600

On Thursday, the Australian dollar is trading at around 0.6610. Analysis of the daily chart suggests a weakening of the bullish sentiment for the AUD/USD pair as it has broken below the lower boundary of the rising wedge. The 14-day Relative Strength Index (RSI) is at 51, and a further decline may confirm a change in dynamics.

The AUD/USD pair could potentially move back into the rising wedge to hit a four-month high at 0.6714, followed by the upper boundary of the rising wedge around 0.6740.

On the other hand, immediate support appears at the psychological level of 0.6600, followed by the 50-day exponential moving average (EMA) at 0.6584. A further decline could put downward pressure on the AUD/USD pair, potentially pushing it towards the 0.6470 support area.

AUD/USD: Daily chart