Australian dollar trades near one-month low on Yellen, US economic data
The market sentiment is bullish to the dollar as investors see an interest rate hike by the Fed later in the year something granted.
Fed Chair Janet Yellen mentioned on Friday that if the economy continues to progress as she expects, “it will be appropriate at some point this year” to start raising borrowing cost.
Investors ignored durable goods orders, which plunged 0.5 percent in April, and focused more on the core capital-goods orders that jumped 1%.
Similarly, they focused on the improvement in consumer confidence and new home sales data, while ignored the retreat in PMI services.
Data released from Australia on Wednesday showed construction work dropped 2.4 percent in the first quarter, worse than analysts’ forecasts of a 1.4 percent decline.
The RBA decided earlier this month to slash the cash rate by 25 basis points to 2 percent, where analysts predict further interest rate cuts by the banks, especially after it lowered its growth and inflation forecasts.
However, RBA deputy governor Philip Lowe said the limits put by the banks on mortgage loans are not designed to help the bank to slash its borrowing cost further.
The RBA may find some difficulty to cut interest rates if the rise in house prices continue.
Expectations of seeing further interest rate cuts by the RBA are putting a downside pressure on the Aussie.
Yet, the depreciation of the currency is favored by the RBA as it bolsters economic growth, where the RBA would prefer to see its currency exchanged at 75 US cents.
The AUDUSD is currently trading around 0.7743 after falling to a bottom of 0.7724.
The pair has dropped below 61.8% Fibo level, as depicted on the daily chart, where a closing below this level may send the pair lower to the next 78.6% Fibo support level.
For the AUDUSD to resume its bearishness after the correction, which took place early April, it has to fall below the low of 0.7532 recorded on April 2.