AUD/USD records best monthly performance in five months

After starting May in the doldrums below .6500c, the AUD/USD ended up securing its first monthly close for the year above .6600c and its best monthly performance (+2.78%) in five months.

AUD/USD's best monthly performance in five months

That the AUD/USD could lock in such impressive figures in May disguised the messy manner in which it advanced. A snapshot taken from the last six trading days of May is a perfect example illustrating a two-step forward, two-step back cycle into the end of the month.

Upon closer investigation, we can see that the AUD/USD’s gains largely occurred in the first three trading days of May, initially after the Fed ruled out another rate hike at the 1 May FOMC meeting and again in mid-May following cooler US PPI and CPI readings.

What drove the AUD/USD rally?

A strong rally in commodities during the first half of the month, with copper and gold standouts, added to the case before a hotter-than-expected Australian CPI inflation reading against a cooler US PCE inflation reading sealed the deal.

This week, AUD/USD traders will focus on Q1 2024 GDP (Wednesday), previewed below. Also on the calendar are Trade Balance for April and Housing Finance on Thursday.

Q1 2024 GDP expectations

Wednesday, 5 June at 11.30am

Last quarter (Q4 2023) Australian GDP rose by 0.2% for an annual rate of 1.5% YoY. While it was the ninth straight quarterly rise, it was viewed as a subpar number as more normal GDP levels in Australia are closer to 3%.

Katherine Keenan, ABS head of national accounts, said: “Growth was steady in December, but slowed across each quarter in 2023.” Noting that “Government spending and private business investment were the main drivers of GDP growth this quarter.”

Within the details:

• Per capita GDP growth fell by 0.3% QoQ. It was the third consecutive quarterly fall in per capita GDP as the “per capita recession” deepened.

• After eight quarters of falls, the household saving-to-income ratio increased to 3.2% from 1.9%, as income received by households outpaced their income paid.

• Inventories subtracted 0.3 percentage points from growth.

• Net exports added 0.6 percentage points to growth as imports fell 3.4%.

• Household spending increased by 0.1% in the December quarter with increases across all essential categories.

• These categories included electricity, rent, food and health.

• Meanwhile, households wound back spending in discretionary areas, including hotels, cafes and restaurants, cigarettes and tobacco, new vehicle purchases and clothing and footwear.

AU annual GDP rate

RBA forecasts

This quarter, the preliminary expectation is for GDP to increase by 0.2% and for the annual growth rate to rise by 1.2%. This aligns with the RBA’s revised forecasts from the May Statement of Monetary Policy. The RBA’s revisions lower mainly reflect a weaker outlook for consumer spending, which is expected to help return demand and supply into balance in the coming quarters. GDP growth is forecast to increase gradually from late 2024, driven by a pick-up in household consumption growth as viewed in the RBA’s forecasts.

RBA growth unemployment and inflation forecast

AUD/USD technical analysis

On the weekly chart, the AUD/USD appears to be setting up for another run towards downtrend resistance now at .6730ish, coming from the .7158 February high. Above here, there is another layer of downtrend resistance from the .8007 high of February 2021, coming in around .7000c. On the downside, uptrend support from the October 2022 .6170 low is viewed at .6350ish.

AUD/USD weekly chart

To resurrect its upside ambitions and to increase the chances that the AUD/USD based at the 19 April .6362 low, the AUD/USD needs to break above last week's .6714 high and then the multi-week trendline resistance noted above at .6730ish. In this case, the next upside target would become a cluster of horizontal resistance at .6870/00 before .7000c.

On the downside, the AUD/USD carved out a double lower last week at .6590ish, which will act as short-term support ahead of the 200-day moving average at .6532. Below that, there is a layer of support at .6480ish from the swing lows of March and April 2024, reinforced by the February .6442 low.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 3 June 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}