On Monday, the Australian Dollar (AUD) edged lower but remained near a seven-month peak of 0.6798. Despite this minor decline, the AUD/USD pair made gains owing to increased risk-on sentiment following dovish remarks by US Federal Reserve Chairman Jerome Powell at the Jackson Hole Symposium on Friday.
Support for the Aussie Dollar came from a hawkish outlook by the Reserve Bank of Australia (RBA). Recent minutes from the RBA’s meeting indicated a consensus against an imminent rate cut, and RBA Governor Michele Bullock reiterated the bank’s readiness to hike rates further if inflation persists.
Conversely, the US Dollar (USD) weakened amid growing expectations of a rate cut in September. The CME FedWatch Tool now fully anticipates at least a 25 basis point reduction by the Federal Reserve at its upcoming meeting.
Jerome Powell hinted at a forthcoming policy adjustment, though he refrained from specifying the timing or extent of potential rate cuts. Meanwhile, Philadelphia Fed President Patrick Harker signaled a “methodical” approach to future rate adjustments, suggesting a series of cuts through 2024 as the Fed shifts towards a more dovish stance. Chicago Fed President Austan Goolsbee added that policy is now at its tightest, with inflation expected to move towards the Fed’s target.
In economic data, the US Composite PMI fell slightly to 54.1 in August, its lowest in four months but still above expectations, indicating sustained business activity growth. Australia’s Judo Bank Composite PMI improved to 51.4, reflecting the fastest expansion in three months, driven by stronger service sector performance despite weaker manufacturing.
The July FOMC Minutes revealed a consensus among Fed officials on the likelihood of a rate cut in September if inflation trends downward. On Tuesday, RBA Minutes showed that while a rate hike was considered earlier in the month, maintaining current rates was deemed a better balance of risks, with a rate cut remaining unlikely in the near term.
Technical Analysis: The Australian Dollar currently trades around 0.6790. The AUD/USD pair, having returned to an ascending channel, shows a bullish bias. The 14-day Relative Strength Index (RSI) nearing 70 supports this positive momentum. Resistance is tested at 0.6798, with a potential rise to 0.6910 if this level is breached. Support levels are identified around 0.6770 and the nine-day Exponential Moving Average (EMA) at 0.6718. A decline below the nine-day EMA could weaken the bullish trend and push the pair towards lower support levels at 0.6575 and 0.6470.
Related Topics:
