On Wednesday, February 5th, before the European market opened, the AUD/USD fluctuated slightly around 0.6250. Despite the improvement in Judo Bank's Purchasing Managers' Index (PMI) in Australia, market risk aversion and expectations of a possible interest rate cut by the Reserve Bank of Australia still weigh on the Australian dollar.

Fundamental analysis

Poor performance of Australian economic data

Although the Judo Bank Purchasing Managers' Index (PMI) in Australia has rebounded, the overall economic performance remains relatively weak. In January, Judo Bank's composite PMI in Australia rose from 50.2 in December to 51.1, indicating a moderate increase in private sector activity. Although this increase reflects some growth, the growth rate is still relatively slow. The PMI for the service industry also rose from 50.8 to 51.2, showing an expanding trend for the twelfth consecutive month, indicating stable growth in the service industry. However, the overall growth momentum is still not strong enough to provide significant support for the Australian dollar.

In addition, the market is generally concerned about the policy movements of the Reserve Bank of Australia. Due to the slowdown in economic growth, the Reserve Bank of Australia may further cut interest rates in February to stimulate economic recovery. Since November 2023, the Reserve Bank of Australia has maintained the official cash rate at 4.35% and emphasized that interest rate cuts will only be considered if inflation can "sustainably" return to the target range of 2% -3%. Therefore, the rising expectation of interest rate cuts may further pressure the Australian dollar, especially in the context of increasing global economic uncertainty, and the market demand for high-risk assets may further decrease.

The impact of market risk sentiment on the Australian dollar

Due to the uncertainty of the global economy, market risk sentiment remains high, and the demand for risk assets in the market has decreased. As a commodity currency, the Australian dollar is often influenced by global risk sentiment, especially when the global economy is under significant pressure, and its performance is usually not as strong as the US dollar. Analysts believe that given the current global economic and trade landscape, the market may be more inclined to choose safe haven assets, further driving down the exchange rate of the Australian dollar.

Technical analyst interpretation:

1. Analysis of exchange rate trends

At present, the AUD/USD is trading around 0.6250, although there are some signs of rebound, the overall trend still shows weakness. According to the analysis of technical charts, the Australian dollar/US dollar exchange rate has entered a downward trend. From the daily chart, the exchange rate has been fluctuating and consolidating between the upper and lower tracks of the channel recently.

2. Relative Strength Index (RSI)

From the perspective of the 14 day Relative Strength Index (RSI), the index is currently around the 50 level, reflecting that the market's momentum is in the neutral zone. The RSI indicator did not show clear signals of overbought or oversold, indicating that the current market price trend is relatively stable and lacks clear directionality. However, if the RSI index continues to break through 50, it may form a strong bullish signal, indicating that the exchange rate may usher in a wave of upward trend.

3. Support and resistance levels

Technically speaking, the Australian dollar/US dollar may face some support and resistance levels in the short term. The short-term support for the exchange rate is around 0.6240, which is the level of the 9-day moving average. In addition, the upper track of the downward channel may also provide some support for the exchange rate. If the exchange rate falls and approaches the lower limit of the channel near 0.6140, it may strengthen the bearish sentiment in the market and push prices further downwards.

On the other hand, if the exchange rate continues to break through the current downward channel, it may usher in a rebound. The main resistance level above is around 0.6330, which is a seven week high set on January 24th. If the exchange rate can continue to maintain this level, it is possible to enter a stronger upward trend.

conclusion

Overall, the Australian dollar/US dollar is currently facing many challenges, mainly due to the slowdown in Australian economic growth and expectations of interest rate cuts by the Reserve Bank of Australia, and may remain weak in the short term. Technically speaking, although RSI remains neutral and has certain support levels, if it cannot continue to break through the upper track of the downward channel, it may still maintain a fluctuating downward trend.

The market is paying attention to changes in the global trade situation and the monetary policy movements of the Reserve Bank of Australia. If these factors undergo significant changes, it may trigger drastic fluctuations in the Australian dollar/US dollar exchange rate. In the short term, the exchange rate may mainly consolidate through volatility, but after breaking through the resistance above 0.6330, a stronger upward trend may be seen.