FUNDAMENTAL ANALYSIS
AUD/USD
The Australian Dollar has pushed 0.79% higher against the greenback over the past week to trade at around 0.7219. The continued strength this week has been attributed to a better than expected trade surplus result ($10.5bn surplus vs $9.0bn surplus expected) and GDP growth figures (3.3% vs 3.0% expected). The state of Australia’s trade balance has been a major beneficiary of the ongoing Russia-Ukraine conflict, as worldwide shortages of critical commodities such as coal and oil have resulted in their prices increasing by more than 30% and 10%, respectively. These positive developments regarding the Australian economy have led to markets pricing in a 40 basis point increase in the cash rate to 0.75%, which has underpinned the upwards move by the Australian Dollar over the week.
GBP/USD
The Pound has fallen 0.94% over the past week well into the 1.2550 region due to the weakening US dollar movement on Thursday, which helped to reclaim some of its losses from the sharp dip that occurred earlier last week. However, the market currently looks very bearish due to increasing inflation rates being announced during the Bank of England’s last meeting on the 4th of May, which saw inflation jump from 7% in March to 9% in April. The war in Ukraine has given the UK heavy supply chain issues, which has led to a slowing of the UK’s economic growth. The UK economic news calender seems to appear empty ahead of the Bank of Policy meeting on June 16, where central banks and other entities are set to raise rates in hopes of curbing its rapidly rising inflation rates. However, Friday’s better than expected non farm payrolls report in the US has made the Sterling sink back into the 1.2500 threshold, causing some concern to investors as the Pound seems to be continuing its bearish move.
TECHNICAL ANALYSIS
AUD/USD
The Australian Dollar showed strength this week, rebounding from its lows near 0.6850 to top at 0.7253 thanks to positive sentiment arising from expectations of a 40bps increase in the RBA’s cash rate target on 7 June. It has broken out of a short-term channel on increased volume, which gives a strong indication of a bullish reversal. The increasing MACD divergence also helps to support this hypothesis. However, with the RSI at 60.5 and fast approaching 70, it is nearing overbought territory. It will be interesting to see how the AUD will respond as it approaches the two resistance levels 0.72655 (marked by the EMA) and 0.73376. If the AUD does break out past these two key levels, we may see it hit 0.76 in the short-term, whilst a rejection could see the AUD trade near the 0.70 level.
GBP/USD
The Pound has pushed 0.94% lower to 1.2550 despite the weakening US dollar movement on Thursday, which helped to reclaim some of the sharp bearish movements we saw over the past week. We can potentially see the continued rally with the price moving up to close the imbalances of the markets before utilising its liquidity to continue its bearish movement amid the increasing inflationary and slow economic data. There is a good potential for it to break the 1.2100 level and continue downwards. Another situation is that GBP/USD can possibly reverse its bearish movement to fill the orders that banks have set in around the 1.4300 and 1.3700 level. This would ensure that institutional orders are filled before the price action turns bearish again.