USD is struggling as the chances of a US recession increase

USD weakens again, as the AUD slips on the RBA 

• US ISM Manufacturing disappointment: The PMI deterioration means economic contraction pressure is increasing 
• USD is slipping: The USD is underperforming major forex but the AUD is also weak after the RBA chose to keep rates on hold
• Equities remain supported: European indices move higher again, but US futures are cautiously flat.
• Metals are cautious, but oil remains supported: In commodities, gold and silver are slightly weaker, but oil is holding on to the gains.

ISM Manufacturing is flashing warning signals 

The ISM Manufacturing PMI is an indicator of the health of the US manufacturing industry.

Yesterday the data for March showed a series of disappointing and somewhat concerning developments.

The headline data was worse than expected, but there were also worrying signs coming through on employment and new orders too.

All the components fell, were below 50 (i.e. in contraction) and were also lower than expected:

• ISM Manufacturing PMI fell to 46.3 (from 47.7 in February)

• ISM Manufacturing Employment fell to 46.9 (from 49.1 in February)

• ISM Manufacturing New Orders dropped to 44.3 (from 47.0 in February)

• ISM Manufacturing Prices fell to 49.2 (from 51.3 in February)

All of these signal that the manufacturing sector is deteriorating in the US.

Lower yields and a lower USD

In response, US yields have unwound sharply the earlier move higher that came following the move by OPEC+ to cut oil production.

The US 2-year yield has dropped back under 4.00% once more.

The data has also weighed on the prospects of a rate hike by the Federal Reserve in the monetary policy meeting in May.

According to CME Group FedWatch the probability of any more increases to interest rates are at 60%, whilst the probability of two -25 basis points rate cuts coming in by the year end is also up at 60%.

The USD has fallen away again.

The Dollar Index has fallen back to 102 and is close to the March low of 101.90 once more, with a move below the support opening the key February low at 100.82.

AUD is also weak following the RBA decision

The USD is not the only weakening currency today.

After the Reserve Bank of Australia chose to keep monetary policy on hold, the AUD is even weaker than the USD today. The RBA kept the cash rate unchanged at 3.60%.

RBA Governor Lowe tried to play a balancing act in the policy statement, saying:

“… some further tightening may well be needed.”

But he also said that there had been a:

“… substantial slowing in household spending.”

Likely, the RBA is now in the process of swinging its focus away from combating inflation and towards supporting growth.

According to Bloomberg, interest rate swaps suggest the first rate cut is being brought forward to November (from December).

USD faltering, but AUD is even more so 

EUR/USD

The weakening of the USD has once more pulled EUR/USD higher.

The market is again moving towards a test of the trading range resistance between 1.0925/1.1030.

• There is a run of higher lows, with yesterday’s low of 1.0788 adding to last week’s key reaction low at 1.0712.
• Momentum is also positively configured with the RSI consistently above 50.

This all points to buying into near-term weakness for a test of the 1.1033 high.

AUD/USD

The weakness of both currencies leaves the pair sitting at a key crossroads still.

Yesterday’s USD weakness helped to drive AUD/USD back to test the key pivot band 0.6785/0.6810 once more. 

However, a weaker AUD today has seen the move drift back again.

Looking at the technicals though there is at least a more neutral outlook now. 

The RSI moving above 50 reflects near-term improvement.

This is more of a ranging market for now, but a decisive close above 0.6810 would turn it into a recovery play.

Support and resistance levels for Forex, Commodities, and Futures/Indices 

Data: MT5/IXOne

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