- A strong recovery in USD demand triggered a sharp sell around AUD / USD on Friday.
- The already stronger dollar received an additional boost thanks to upbeat core inflation data from the PCE.
- Risk appetite in the stock markets could help limit losses for the perceived risky Aussie.
The AUD/USD it has lost 25 pips after the publication of the PCE inflation data for the United States, sliding below 0.7700 to 0.7675, the new low since May 4. At time of writing, the pair is trading above 0.7686, shedding 0.79% on the day.
The pair witnessed a sharp sell on the last trading day of the week and extended this week’s rejection drop from around 0.7800. The sharp intraday decline was exclusively driven by a general strength in the US dollar, which received an additional boost following the release of key inflation data.
According to data released by the US Bureau of Economic Analysis, the core PCE price index, the Fed’s preferred gauge of inflation, rose 3.1% year-on-year in April. The reading was considerably above the central bank’s 2% target and validated the higher inflation narrative. This, in turn, fueled speculation that the Fed would take off earlier than expected.
Aggressive expectations from the Fed strengthened, along with the anticipated supply of government debt that pushed US bond yields higher. This was seen as another factor that extended some additional support to the dollar. The New York Times reported Thursday that US President Joe Biden will announce a $ 6 trillion budget for fiscal year 2022.
Meanwhile, the Biden administration’s multi-billion dollar spending plan provided a strong boost to the already upbeat market mood. This was evident from a strong rally in world equity markets. This could turn out to be the only factor that could extend some support to the perceived riskier Aussie and help limit further losses for the AUD / USD pair.
From a technical perspective, acceptance below 0.7700 could be seen as a new trigger for bearish traders. Some follow-up selling below monthly lows will reaffirm a negative outlook and make AUD / USD vulnerable to prolong its downward trajectory in the near term.
Technical levels
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