• The Australian dollar rises as the Australian trade surplus increases in May.
• The Australian Bureau of Statistics reported that the trade balance in May was 6,548 million m/m, exceeding the expected 5,500 million.
• The U.S. dollar is struggling after Wednesday’s Fed speculation of a rate cut amid mixed data.

The Australian dollar (AUD) pared its recent losses on Thursday. The AUD/USD pair strengthened following the release of Australia’s trade balance, which rose to 6,548 million month-on-month in May, exceeding the expected 5,500 million and the April balance of 5,024 million. Australian imports fell by 7.2% m/m in May, compared with April’s boost of 4.2%. Exports contracted by 2.5% after a previous decline of 0.6%.

The Australian dollar may gain in value following a hawkish statement from Reserve Bank of Australia (RBA) Governor Michele Bullock on Wednesday. Bullock indicated that the central bank is prepared to raise interest rates if the Consumer Price Index (CPI) does not return to the target range of 1%-3%. She also admitted that, according to NCA NewsWire, the situation on the labor market is easing in many respects.

The US dollar (USD) struggled after the release of mixed economic data in the United States (US), which fueled speculation about interest rate cuts by the US Federal Reserve (Fed). According to the CME FedWatch Tool, the probability of a Fed rate cut of at least 25 basis points increased to almost 70.0%, up from 47.5% a week earlier.

The depreciation of US Treasury yields puts pressure on the dollar. Investors are awaiting Friday’s release of key U.S. employment data, including average hourly earnings and wages in the non-farm sector.

Market overview: The Australian dollar is rising as risk sentiment improves

• On Wednesday, the ISM US Services PMI rose to 53.8 for May, setting a nine-month high and well above the forecast of 50.8. Meanwhile, the ADP US Employer Change report showed 152,000 up-to-date workers added to the payroll in May, the lowest level in four months and well below the forecast of 175,000 and downwardly revised figure of 188,000 for April.
• Australia’s gross domestic product (GDP) was released on Wednesday and grew by 0.1% in the first quarter, compared to expected readings of 0.2%. On an annual basis, the economy grew by 1.1%, slightly below the expected 1.2%.
• The Judo Bank Purchasing Managers’ Index (PMI) came in at 52.5, lower than the expected May reading of 53.1. Meanwhile, the Judo Bank Composite PMI recorded a reading of 52.1 in May, down slightly from 53.0 in April. It showed Australia’s private sector output grew for the fourth month in a row, albeit at a slower pace.
• Caixin China Services PMI was 54.0 in May, beating expectations of 52.6 and the previous value of 52.5. This was the 17th consecutive month of growth in services activity, marking the fastest pace since July 2023. Any changes in the Chinese economy could impact the Australian market as the two countries are close trading partners.
• Last week, Atlanta Fed President Raphael Bostic noted in an interview on Fox Business that he did not believe further interest rate increases would be necessary to meet the Fed’s 2% annual inflation target. Additionally, New York Fed President John Williams said inflation is still too high but should ease in the second half of 2024. According to Reuters, Williams does not believe there is an urgent need for monetary policy action.

Technical Analysis: The Australian Dollar remains above 0.6650

On Thursday, the Australian dollar is trading at around 0.6670. Daily chart analysis shows a bullish bias for the AUD/USD pair as it remains within a rising wedge formation. This bullish sentiment is further supported by the 14-day Relative Strength Index (RSI) which is above the 50 level.

Potential upside targets for the AUD/USD pair include the psychological level of 0.6700, the four-month high of 0.6714 and the upper boundary of the rising wedge around 0.6750.

On the other hand, immediate support is the 21-day exponential moving average (EMA) at 0.6634, which coincides with the lower boundary of the rising wedge. We find additional support at the psychological level of 0.6600. A further decline could push the AUD/USD pair towards the 0.6470 support area.

AUD/USD: Daily chart