On Tuesday, the Australian Dollar (AUD) edged higher against the US Dollar (USD), maintaining a position just below the seven-month high of 0.6798 achieved on Monday. The AUD/USD pair is poised for further gains as market participants anticipate differing policy directions from the Reserve Bank of Australia (RBA) and the US Federal Reserve. Traders are closely watching the upcoming Monthly Consumer Price Index (CPI) report, scheduled for Wednesday, which could influence the RBA’s policy stance.
The latest minutes from the Reserve Bank of Australia revealed that board members consider a rate cut unlikely in the near term. RBA Governor Michele Bullock affirmed that the central bank is prepared to raise rates if necessary to address inflationary pressures.
US Federal Reserve Chairman Jerome Powell, speaking at the Jackson Hole Symposium on Friday, suggested that the time has come for policy adjustments, though he did not specify the timing or scale of potential rate cuts.
According to the CME FedWatch Tool, the market is fully expecting a 25 basis point rate cut by the Federal Reserve in its September meeting. On Monday, San Francisco Fed President Mary Daly indicated that a quarter-percentage point reduction might be appropriate, provided inflation continues to slow and the labor market remains robust.
US Durable Goods Orders surged by 9.9% month-over-month in July, reversing a 6.9% decline in June and surpassing the anticipated 4.0% increase. This marked the largest gain since May 2020.
In contrast, Philadelphia Fed President Patrick Harker has called for a gradual reduction in interest rates, while Chicago Fed President Austan Goolsbee noted that current monetary policy is highly restrictive, with a focus on achieving employment targets.
The US Composite PMI edged down to 54.1 in August, a four-month low but above the expected 53.5, indicating continued business activity expansion for the 19th consecutive month. Meanwhile, Australia’s Judo Bank Composite PMI rose to 51.4 in August, up from 49.9 in July, driven by stronger service sector performance despite a contraction in manufacturing.
The FOMC minutes from July’s meeting indicated that a majority of Fed officials are likely to endorse a rate cut in September if inflation continues to moderate. Conversely, the RBA minutes suggested that while a rate hike was considered earlier in the month, maintaining current rates was deemed a more prudent approach.
Technical Analysis: Australian Dollar Tests Key Resistance
Currently trading around 0.6770, the AUD/USD pair has fallen below the ascending channel, indicating a potential weakening of the bullish trend. The 14-day Relative Strength Index (RSI) remains below 70, supporting the ongoing bullish outlook.
Resistance levels include the recent seven-month high of 0.6798 and the lower boundary of the ascending channel at 0.6800. A breakout above this resistance could push the pair towards the upper boundary of the channel at 0.6940.
On the downside, support is expected around the nine-day Exponential Moving Average (EMA) at 0.6726. A drop below this level could weaken the bullish momentum, with potential further declines towards the throwback levels of 0.6575 and 0.6470.
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