The Australian Dollar (AUD) is currently experiencing a decline against the US Dollar (USD) as traders await the ISM Manufacturing PMI data scheduled for release on Tuesday. However, the AUD/USD pair may find support from improved risk sentiment, driven by expectations of a dovish stance by the US Federal Reserve (Fed) regarding its policy outlook. Traders are closely monitoring Australia’s Q2 Gross Domestic Product (GDP) and July Trade Balance data, as well as an upcoming speech by Reserve Bank of Australia (RBA) Governor Michele Bullock for further insights into the central bank’s monetary policy stance.
On the other hand, the US Dollar is strengthening as Treasury yields continue to rise, although gains may be limited by increasing expectations of a 25 basis point rate cut by the Fed in September. Attention will soon shift to upcoming US employment data, specifically the August Nonfarm Payrolls (NFP), for more clarity on the potential timing and magnitude of Fed rate cuts. Meanwhile, the Australian Dollar faces challenges despite a hawkish RBA, with the US Dollar being the strongest performer amongst major currencies.
Recent data releases have shown positive signs for Australia, such as a surge in Building Permits and China’s Caixin Manufacturing PMI picking up in August, which is significant given China’s close trade ties with Australia. However, the US economy also demonstrated strength with the GDP growing at a rate higher than expected in the second quarter. In addition, the headline Personal Consumption Expenditures (PCE) Price Index rose by 2.5% year-over-year in July, slightly below estimates, but the core PCE remained consistent at 2.6%.
Technical analysis of the AUD/USD pair indicates a short-term bullish trend, with the pair trading above the nine-day Exponential Moving Average (EMA) and the 14-day Relative Strength Index (RSI) above the 50 level. Resistance levels are identified at the seven-month high of 0.6798, with potential for further bullish momentum towards the psychological level of 0.6900. Conversely, support levels are at the nine-day EMA at 0.6767 and the 14-day EMA at 0.6743, with a break below these EMAs potentially leading to a decline towards the throwback level at 0.6575.
Factors influencing the Australian Dollar include the level of interest rates set by the RBA, the price of Iron Ore, the health of the Chinese economy, inflation and growth in Australia, and market sentiment. Additionally, the Trade Balance, which reflects the difference between exports and imports, can impact the value of the Australian Dollar. Overall, the AUD faces challenges against the USD, with the US Dollar expected to remain strong amidst rising Treasury yields and expectations of Fed rate cuts.
