AUD/USD Dips on Dollar Strength and Mixed Data - Fundamental

The AUD/USD pair had a negative performance at the beginning of Tuesday, following a slow start to the week. It faced selling pressure, reversing the earlier rebound during the mid-Asian session and recording slight losses around 0.6650 at the current time.

This decline can be attributed to the stronger US Dollar, despite the lack of a deal between US President Joe Biden and House Speaker Kevin McCarthy to avoid the debt ceiling expiration. The US Dollar Index (DXY) has been gradually rising and is currently around 103.30.

Meanwhile, Australia's preliminary S&P Global PMI readings for May showed a mixed picture. The Manufacturing gauge came in at 48.0, slightly higher than the expected 47.3, while the Services PMI decreased to 51.8 from the previous reading of 53.7 and the forecast of 48.9. The Composite PMI for Australia stood at 51.2, down from April's figure of 53.0.

Additionally, the tensions between the West and Russia, as well as conflicts between the G7 and China, are weighing on the AUD/USD pair. Russia's strengthening ties with China, including the potential increase in trade turnover to $200 billion, has strained relations with the West. Given Australia's relationship with China, such developments have a negative impact on AUD/USD.

Furthermore, the increasing likelihood of a 0.25% interest rate hike by the Federal Reserve in June, as well as no rate cuts expected in 2023, compared to the Reserve Bank of Australia's dovish stance, also contribute to the bearish sentiment for AUD/USD.

In the broader market, S&P500 Futures are showing a slight uptrend near 4,220, rising for the second consecutive day after pulling back from a nine-month high on Friday. The positive performance of US stock Futures and Wall Street is causing a pause in the five-day uptrend of the benchmark 10-year and two-year US Treasury bond yields, which had reached their highest levels in two months.

Looking ahead, the initial readings of S&P Global Purchasing Managers Indexes (PMIs) for May in the US will be important for AUD/USD traders to determine clear directions. Additionally, the ongoing US debt ceiling negotiations and discussions by the Federal Reserve will be significant factors to monitor. From a technical perspective, the price has experienced a rebound at the 61.8% Fibonacci level within a bearish channel, and there seems to be a formation of an AB=CD pattern, indicating a potential target point around the 1.272% Fibonacci extension. Overall, the outlook suggests a continuation of the bearish trend for AUD/USD.

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