Australian Dollar remains weaker as US Dollar appreciates due to risk-off mood

• The Australian Dollar declines despite a hawkish sentiment surrounding the RBA’s rate trajectory.
• Australia’s Judo Bank Composite PMI increased to 51.4 in August, fueled by stronger service sector growth.
• The latest FOMC Minutes indicate that most Fed officials agreed on a rate cut in September.

The Australian Dollar (AUD) depreciates against the US Dollar (USD) despite strong business activity data released on Thursday. However, the downside of the AUD/USD pair could be limited due to the hawkish stance adopted by the Reserve Bank of Australia (RBA) about its policy outlook. RBA’s August Meeting Minutes suggested that the cash rate might stay unchanged for an extended period.

Australia’s Judo Bank Composite Purchasing Managers Index (PMI) rose to 51.4 in August, up from 49.9 in July. This increase marks the fastest expansion in three months, driven by a stronger performance in the services sector, despite a more pronounced contraction in manufacturing production.

The US Dollar (USD) edges higher due to a slight recovery in the Treasury yields on Thursday. However, the Greenback faced challenges as FOMC Minutes for July’s policy meeting indicated that most Fed officials agreed last month that they would likely cut their benchmark interest rate at the upcoming meeting in September as long as inflation continued to cool. Furthermore, traders await Fed Chair Jerome Powell’s upcoming speech at Jackson Hole on Friday.

Daily Digest Market Movers: Australian Dollar edges lower due to risk-off mood

• CME FedWatch Tool suggests that the markets are now pricing in a nearly 65.5% odds of a 25 basis point (bps) Fed rate cut in its September meeting, down from 71.0% a day ago. The probability of a 50 basis point rate cut increased to 34.5% from 29.0% a day earlier.
• The Judo Bank Australia Services PMI climbed to 52.2 in August from 50.4 in July, marking the fastest expansion in services output in three months, according to preliminary data. Meanwhile, the Manufacturing PMI slightly increased to 48.7 from 47.5 reading, signaling a continued but slower decline in the sector’s health for the seventh consecutive month.
• Federal Reserve (Fed) Governor Michelle Bowman expressed caution on Tuesday about making any policy changes, citing ongoing upside risks to inflation. Bowman warned that overreacting to individual data points could undermine the progress already achieved, according to Reuters.
• On Tuesday, the RBA Minutes suggested that the board members had considered a rate hike earlier this month before ultimately deciding that maintaining current rates would better balance the risks. Additionally, RBA members agreed that a rate cut is unlikely soon.
• China is exploring a new approach to bolster its ailing real estate market by permitting local governments to use special bonds to purchase unsold properties. Local authorities have already utilized more than half of this year’s CNY 3.9 trillion ($546 billion) bond allocation, and it’s unclear how much of the remaining funds could be redirected toward home purchases if the plan is implemented, according to Bloomberg.
• Minneapolis Fed President Neel Kashkari stated on Monday that it would be appropriate to discuss potential US interest rate cuts in September due to concerns about a weakening labor market, per Reuters.
• RBA Governor Michele Bullock expressed that the Australian central bank will not hesitate to raise rates again to combat inflation if needed. Those comments came just days after the RBA decided to hold rates steady at 4.35% for the sixth straight meeting in August.

Technical Analysis: Australian Dollar consolidates around 0.6750

The Australian Dollar trades around 0.6740 on Thursday. Daily chart analysis shows the AUD/USD pair consolidates within an ascending channel, suggesting a bullish bias. Additionally, the 14-day Relative Strength Index (RSI) remains slightly below the 70 mark, supporting the ongoing bullish momentum. Further upward movement could indicate that the currency pair is overbought, potentially leading to a correction.

On the upside, the AUD/USD pair could test a seven-month high of 0.6798. A break above this level could lead the pair to explore the region around the upper boundary of the ascending channel at the 0.6860 level.

For support, the pair may find support around the lower boundary of the ascending channel at 0.6700 level, followed by the nine-day Exponential Moving Average (EMA) at 0.6683 level. A drop below the nine-day EMA could see the pair test the throwback level at 0.6575, followed by the next throwback level at 0.6470.

AUD/USD: Daily Chart