Australian Dollar trims profits due to risk aversion as US NFP looms

• The Australian Dollar offers gains as investors adopt caution before the release of the US NFP on Friday.
• The Australian Bureau of Statistics reported a Trade Balance figure of 6,548 million MoM in May, surpassing the expected 5,500 million.
• The US Dollar may struggle as Wednesday's mixed data fuel rate cut speculations by the Fed.

The Australian Dollar (AUD) retraces its daily gains on Thursday. This could be possibly attributed to traders adopting a cautious stance ahead of the release of US employment data releases on Friday, including the Average Hourly Earnings and Nonfarm Payrolls. The AUD/USD pair was strengthened during the earlier hours after the Trade Balance data release in Australia, which widened to 6,548 ($ 4,321.68) million MoM in May, exceeding the expected 5,500 million and April's balance of 5,024 million. Australia’s Imports plunged by 7.2% MoM in May, swinging from April’s 4.2% increase. Exports shrank 2.5% following the previous decline of 0.6%.

The Australian Dollar could appreciate due to a hawkish statement by Reserve Bank of Australia (RBA) Governor Michele Bullock on Wednesday. Bullock indicated that the central bank is prepared to increase interest rates if the Consumer Price Index (CPI) does not return to the target range of 1%-3%. She also acknowledged that the labor market is easing on several measures, as reported by NCA NewsWire.

The US Dollar (USD) may struggle as mixed economic data from the United States (US), fueling interest rate cut speculation by the US Federal Reserve (Fed). As per the CME FedWatch Tool, the probability of a Fed rate cut by at least 25 basis points has increased to nearly 70.0%, up from 47.5% a week earlier. The depreciation of the US Treasury yields is putting pressure on the Greenback.

Daily Digest Market Movers: Australian Dollar depreciates due to risk aversion

• On Wednesday, the ISM US Services PMI soared to 53.8 in May, marking its highest level in nine months and significantly surpassing the forecast of 50.8. In contrast, the ADP US Employment Change report showed that 152,000 new workers were added to payrolls in May, the lowest in four months and well below the forecast of 175,000 and the downwardly revised figure of 188,000 for April.
• Australia's Gross Domestic Product (GDP) was released on Wednesday, which grew 0.1% in the first quarter, against the expected 0.2% reading. On an annual basis, the economy grew 1.1%, slightly below the expected 1.2%.
• Judo Bank Purchasing Managers Index (PMI) came in at 52.5, lower than the expected reading of 53.1 for May. Meanwhile, Judo Bank Composite PMI recorded a reading of 52.1 in May, a slight decrease from 53.0 in April. This shows that Australia's private sector output continued to grow for the fourth consecutive month, though at a slower rate.
• Caixin China Services PMI came in at 54.0 in May, surpassing expectations of 52.6 and the previous figure of 52.5. This marked the 17th consecutive month of expansion in services activity, indicating the fastest pace since July 2023. Any change in the Chinese economy could impact the Australian market as both countries are close trade partners.
• Last week, Atlanta Fed President Raphael Bostic remarked in an interview with Fox Business that he doesn't believe further rate hikes should be required to reach the Fed's 2% annual inflation target. Additionally, New York Fed President John Williams stated that inflation is still too high but should moderate over the second half of 2024. Williams doesn't feel the urgency to act on monetary policy, per Reuters.

Technical Analysis: Australian Dollar hovers around 0.6650

The Australian Dollar trades around 0.6670 on Thursday. Analysis of the daily chart shows a bullish bias for the AUD/USD pair, as it remains within a rising wedge pattern. This bullish bias 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 limit of the rising wedge around 0.6750.

On the downside, immediate support is at the 21-day Exponential Moving Average (EMA) at 0.6634, which aligns with the lower boundary of the rising wedge. Additional support is found at the psychological level of 0.6600. A further decline could pressure the AUD/USD pair towards the throwback support region at 0.6470.

AUD/USD: Daily Chart