AUDUSD bounces off 0.635 support level toward 5-month high

The AUDUSD currency pair faced significant selling pressure during yesterday’s trading session. A globally strengthening US dollar, driven by progress in US-China trade negotiations, pushed the price down to the 0.635 support level. This mark has limited downward price movements for a month and once again halted bearish momentum on Monday. Today, buyers of the Australian dollar are attempting to regain control, triggering a rebound to 0.64. Their next targets may include last week’s highs and the five-month peak of 0.65.

The Australian dollar is bolstered by today’s improved consumer and business confidence figures. While April’s data showed growth, absolute values remain below historical averages. Bloomberg analysts suggest May’s PMI figures could rise sharply amid easing US-China trade tensions. Additionally, Australia’s parliamentary elections on May 3 are being viewed positively by domestic businesses and households.

Recent developments have shifted expectations for the Reserve Bank of Australia (RBA). While a 0.25% rate cut is anticipated at the May 20 meeting, further easing through 2025 is now projected to total no more than two cuts, down from traders’ earlier forecasts of five to six. Bank of America economists also highlight the impact of Australia’s new Labor government, which secured a majority and plans to boost economic investment. This fiscal stimulus may prompt caution from the RBA in balancing growth and inflation.

Reuters cites the actions of local pension funds as another factor potentially strengthening the Australian dollar. Typically, these funds might increase investment in US securities when the American stock market falls. In recent weeks, however, that has not been happening. Amid perceived policy inconsistency from the US authorities, Australian investors appear reluctant to increase their investments in American equities. According to Citi analysts, this dynamic could lead to an 11% rise for the Australian dollar against the US dollar.

On the AUDUSD daily chart, the Stochastic indicator has reached the oversold zone and looks poised to generate a buy signal. The bulls' nearest target is the 0.65 level.

Consider the following trading strategy:

Buy AUDUSD at the current price. Take profit – 0.65. Stop loss – 0.635.