On Monday, the US Dollar experienced a decline against major currencies, with the DXY Dollar Index dropping by 0.5%. This marks the poorest daily performance since March 22nd, adding to a series of losses since early March. 

Meanwhile, the Australian Dollar, which is linked to market sentiment, outperformed its major counterparts.

The latest US ISM Manufacturing Index, released in the past 24 hours, was below expectations, indicating disappointing results. In March, the index recorded a reading of 46.3, lower than the estimated 47.5 and down from February’s 47.7. 

Readings below 50 suggest a contraction in economic activity, and factory activity continued to weaken due to rising interest rates and concerns over tighter lending conditions.

Despite these negative implications, Wall Street mostly finished in the green, and the US Dollar was up year-over-year in Q1 2023 despite ISM’s weakening, highlighting the US Dollar Smile Theory. The 2-year Treasury yield took a significant hit, falling by 1.41%, reflecting increasingly dovish Federal Reserve policy expectations.

The Reserve Bank of Australia’s interest rate announcement will be the key event risk for Tuesday’s Asia-Pacific trading session. The 11-month tightening cycle is expected to pause, with interest rates left unchanged at 3.6% following recent signs of ebbing inflation and growth. 

However, the market is still pricing in a potential hike in April or May. If the RBA hints at concluding its tightening cycle, then AUD/USD could rally.

The DXY Index is expected to continue its downward trajectory, indicated by a Bear Flag chart formation. The 100-day Simple Moving Average continues to offer a downside bias, and the US Dollar is approaching a pivotal momentum around the 100.82 – 101.29 support zone. Clearing this zone would open the door to extending the near-term downside bias.


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