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AUD/USD Weakens on Improved US Outlook

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AUD/USD Weakens on Improved US Outlook

The Australian dollar declined sharply against a stronger greenback amid signs the US economy was regaining momentum at the start of the second quarter.

The AUDUSD pair declined 0.35 percent to 0.9226, as investors continued to absorb the flurry of US data from the prior session. The pair now finds support at 0.9222. On the upside, initial resistance is likely found at 0.9293.

In economic news, the Melbourne Institute’s leading index pointed to a sharp slowdown in the Australian economy, largely a result of declining consumer sentiment.

“The May Leading Index reading is the weakest since late 2011, when the RBA embarked on its latest interest rate easing cycle,” said Westpac chief economist Matthew Hassan in a press release. “At that time, Europe’s sovereign debt crisis was in full swing and consumer sentiment had slumped heavily.”

According to Hassan, the sharp slowdown in consumer sentiment is likely a reaction to the latest federal budget, which introduced far-reaching spending cuts to balance the country’s budget.

Earlier this month the Australian government unveiled its latest economic blueprint, which promises to cut the budget deficit in half over the next year through a combination of spending cuts and tax hikes.

The spending cuts are expected to result in thousands of job losses. As a result, the Australian government expects the unemployment rate to rise to 6.25 percent and remain there until mid-2016.

Australia’s unemployment rate fell from 6.1 percent to 5.8 percent in March.

A separate report from the Australian Bureau of Statistics showed completed construction work advanced 0.3 percent in the first quarter, following a decline of 1.1 percent in Q4 2013. Economists forecast a decline of 0.2 percent in Q1.

On Thursday the Housing Industry Association will report on Australian new home sales. The ABS will also report on first quarter private capital expenditure. The Aussie will close out the week with a report on private sector credit, courtesy of the RBA.

The Aussie’s latest fall is partly a reflection of the US dollar’s newfound strength. The US economy appears to have gathered pace at the start of the second quarter, as job growth, business activity and housing activity all rebounded. On Thursday the National Association of Realtors will complete the picture on April’s housing recovery with the release of pending home sales. Economists say pending home sales probably increased 1 percent in April.

In other trading, the Aussie advanced more than half a percent against the New Zealand dollar. The AUDNZD soared to a session high of 1.0888. The pair consolidated at 1.0869, advancing 0.53 percent.The trend line shows initial support at 1.0803 and resistance at 1.0877.

The kiwi was under pressure after New Zealand business confidence fell sharply in May, ANZ reported today. May marked the third consecutive month business confidence declined after soaring to a 20-year high of 70.8 percent in February.

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