ASX Extends Losses as Federal Budget and Hot US Inflation Shake Sentiment

for social/Preview: AUD Rally at Critical Crossroad, Gold Loses Momentum

Australian equities slipped for a fourth consecutive session on Wednesday as investors reacted to hotter-than-expected US inflation data alongside the implications of Australia’s latest federal budget. The S&P/ASX 200 remained under pressure after annual US inflation accelerated to 3.8% in April, the highest level since May 2023, reinforcing concerns that elevated energy prices linked to the Middle East conflict are feeding into broader inflation pressures. Locally, Treasurer Chalmers’ 2026-2027 Budget announced on Tuesday night confirmed the replacement of the 50% CGT discount with an inflation-linked model and a 30% minimum tax on capital gains from 1 July 2027, while restricting negative gearing to new residential properties for purchases made after 12 May 2026. For AU investors, this reshapes the after-tax return profile of direct property, REITs, and equity portfolios outside superannuation. Oil prices remained elevated after WTI crude held near US$102 a barrel following a three-session rally, as the near-closure of the Strait of Hormuz and stalled US-Iran negotiations continued disrupting global energy flows. Meanwhile, markets are closely watching the confirmed Trump-Xi summit in Beijing on May 14–15 — the first US presidential visit to China since 2017 — where trade, the Iran conflict, and Taiwan are all on the agenda. Any signal on Strait of Hormuz pressure or tariff relief would carry direct implications for energy prices and Australian export demand. Against this backdrop, markets are increasingly reassessing the outlook for global interest rates, with persistent inflation pressures, higher energy costs, geopolitical uncertainty, and domestic policy changes all contributing to a more cautious risk environment. This week, we focus on the following markets:

AUD/USD — Rally Approaches Critical Crossroad

AUD/USD is approaching a pivotal technical crossroads after an extended rally pushed the pair back toward the key 0.7280 resistance zone near the June 2022 highs. While the broader recovery structure remains intact for now, the rally is beginning to face mounting pressure from both a strengthening US dollar backdrop and heavy technical resistance that has repeatedly capped upside attempts over the past three years. The recent rebound was initially supported by broad USD weakness and RBA’s rate hike trajectory, but this week’s hotter-than-expected US inflation data has started shifting attention back toward the prospect of US interest rates staying higher for longer. That has helped stabilise the US dollar and potentially reduced momentum behind the Aussie dollar’s recent rally. Technically, price action is also beginning to lose momentum as AUD/USD approaches the upper boundary of its rising channel. Momentum indicators have softened from earlier overbought conditions, suggesting the recent uptrend may be entering a consolidation phase after a strong multi-week rally. The key test is a sustained close above 0.7280 — the June 2022 highs. Failure there opens a pullback toward 0.7160 support and the 50-day moving average near 0.7040. For now, the Aussie dollar remains structurally supported, but the combination of stronger US dollar pressure and major resistance levels
suggests the recent rally may be approaching an important near-term turning point. Suggests the recent rally may be approaching an important near-term turning point.

DXY — Inflation Surprise Helps Stabilise the Dollar

The US Dollar Index appears to begin stabilising after months of sustained weakness, as hotter-than-expected US inflation data forced markets to reassess expectations for Federal Reserve rate cuts. While the broader trend remains relatively soft, the rebound in US inflation and rising Treasury yields have helped slow downside momentum in the dollar. Technically, DXY remains trapped within a broader descending channel while continuing to trade below major long-term moving averages, keeping the medium-term trend cautious. However, momentum indicators have started recovering from oversold territory, suggesting selling pressure may be easing in the short term. Initial resistance is seen near 98.38, followed by the heavier supply zone around 98.57–99.00. On the downside, support remains near 97.850, with a break below that level potentially exposing further weakness toward the 97 region. For now, the dollar appears to be shifting from a one-directional decline into a more stabilised consolidation phase as markets reassess the global rate outlook.

Gold — Recovery Rally Begins Losing Momentum

Gold’s recent rebound appears to be losing momentum after repeated failures to reclaim key resistance levels, with the metal increasingly facing pressure from a firmer US dollar and renewed inflation concerns tied to elevated oil prices and ongoing geopolitical uncertainty. The recovery earlier this month was initially supported by softening oil prices and safe-haven demand. However, stronger-than-expected US inflation data has shifted market focus back toward the likelihood that the Federal Reserve may need to keep interest rates elevated for longer, helping stabilise the US dollar and limiting upside momentum across precious metals. Technically, gold continues trading below descending trend resistance and remains capped beneath the 50-day moving average, suggesting the broader rebound remains fragile. Momentum indicators have improved from oversold territory but are now beginning to flatten again, indicating the recent recovery may be running out of steam. Initial resistance remains near US$4,770–4,880, while downside support is seen near US$4,510, followed by stronger structural support closer to US$4,330. Unless gold can decisively break above trend resistance, the current rebound risks fading into another consolidation phase.

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