AUD/USD extends its fall below 0.7050 ahead of RBA’s interest rate decision

• The Australian dollar begins May downbeat, losing 0.29%.
• Sentiment fluctuated risk-off/risk-on, following a worse than expected US ISM Manufacturing PMI.
• US ISM Manufacturing PMI slows and expands at a slower pace
• AUD/USD Price Forecast: Remains downward pressured and could threaten to break below 0.7000.

The Australian dollar begins May on the back foot, despite a possible rate hike by the Reserve Bank of Australia (RBA) in the week, which is following the Federal Reserve’s footsteps. However, the latter is about to accelerate the pace of tightening monetary policy on Wednesday, where market players expect a 50-bps rate increase which would lift the FFR to 1%. At the time of writing, the AUD/USD is trading at 0.7036.

US ISM Manufacturing PMI slows and expands at a slower pace

The market sentiment fluctuated to risk-off/risk-on when the Institute for Supply Manufacturing (ISM) revealed April’s Manufacturing PMI, which came at 55.4, lower than the 57.6 foreseen in the street. The drop in the month is the lowest in the last 21-months and continues the recent downturn that started in December of 2021. Timothy Fiore, chair of ISM’ said that “the US manufacturing sector remains in a demand-driven, supply chain-constrained environment.”  She added that “in April, progress slowed in solving labor shortage problems at all tiers of the supply chain.”

The positive of the reading is that the index of Prices Paid fell from 87.1 to 84.6, a signal that could probably mean that inflation could be peaking.

Also, read: US: ISM Manufacturing PMI falls to 55.4 in April versus 57.6 expected

In the meantime, in the Asian/European session, equities traded with losses. China’s coronavirus outbreak had a setback in Shanghais, reporting 58 new Covid-19 cases, while Beijing intensified testing. Geopolitical-wise, the Ukraine-Russia conflict continues, and it appears would that peace talks will not resume in the near term as Russian Foreign Minister Lavrov said that Ukrainians had sabotaged negotiations, while the Ukrainian negotiator Podolyak denied this and said that Lavrov hast has not attended a single negotiation round.

Meanwhile, US Treasury yields skyrocket ahead of the Federal Reserve May’s monetary policy meeting. The 10-year benchmark note sits at 2.975%, hovering around the 3% threshold, underpinning the greenback, with the US Dollar Index gaining some 0.33%, up at 103.562.

In the week ahead, on Tuesday, the Reserve Bank of Australia (RBA) will reveal its interest rate decision, widely expected to increase by 15 bps, while Retail Sales and the RBA Chart Pack will be unveiled on Wednesday. On Wednesday, the Federal Reserve monetary policy decision will be revealed on the US front, followed by Chair Jerome Powell’s press conference, and by Friday, the Nonfarm Payrolls report.

AUD/USD Price Forecast: Technical outlook

The AUD/USD is stills downward biased, and on Monday, broke below February’s 4 swing low at 0.7051. Also, the daily moving averages (DMAs) above the spot price have the 50-DMA at 0.7346, aims lower, and close into the 200-DMA at 0.7284, triggering a death cross, motivating sellers to break below the 0.7000 figure.

That said, the AUD/USD first support would be 0.7000. Break below would expose the January 28 YTD low at 0.6967, followed by the June 15, 2020 pivot low at 0.6777.