The Australian Dollar (AUD) is trading slightly lower at around 0.7003 against the US Dollar (USD) during the European session on Monday, as the US Dollar outperforms amid growing expectations of further Federal Reserve (Fed) interest rate hikes this year [1]. The US Dollar Index (DXY), which measures the Greenback against six major currencies, is up 0.1% near 100.90, reflecting the USD's relative strength [1].
Bank of America (BofA) analysts now anticipate the Fed will implement three 25 basis point rate hikes in September, October, and December, marking a significant shift from earlier expectations that the central bank would keep rates unchanged in 2024 [1]. BofA stated, "The data simply don't warrant cuts this year. Core inflation is too high and moving up. The solid April jobs report was the last straw, especially given hawkish Fedspeak" [1].
On the technical front, AUD/USD remains in a bearish near-term posture, trading below both the 20-period exponential moving average (EMA) at 0.7069 and the former rising trend-line break point near 0.7096, which now act as resistance levels [1]. The Relative Strength Index (RSI) is around 37, indicating persistent downside pressure as the pair consolidates near the 0.7000 level [1]. A daily close above 0.7069 or 0.7096 would be needed to ease the current bearish bias, while failure to reclaim these levels could see AUD/USD slide towards new lows below 0.7000, with potential to reach 0.6900 if the 0.6980 support is breached [1].
Investors are closely watching upcoming Australian economic data, with the Consumer Price Index (CPI) for May due on Wednesday and employment data on Thursday [1]. The consensus for the May CPI is 4.3% year-over-year, up from the previous 4.2% [1]. The CPI is a key measure of headline inflation and is now released monthly, with a high reading generally seen as bullish for the AUD and a low reading as bearish [1].
CONCLUSION
The AUD/USD pair is under pressure due to rising expectations of multiple Fed rate hikes, while technical indicators point to further downside risk. Upcoming Australian CPI and employment data will be critical for the pair's direction, with a higher-than-expected inflation reading potentially offering support to the AUD.