Australian Dollar advances further due to rising odds of RBA adopting a hawkish stance

• The Australian Dollar appreciates as recent labor data reduces the likelihood of an RBA rate cut in the near term.
• The Aussie Dollar may face challenges due to safe-haven flows amid rising geopolitical tensions in the Middle East.
• The US Dollar experienced losses following downbeat Producer Price Index data on Tuesday.

The Australian Dollar (AUD) extends its gains for the third successive session against the US Dollar on Wednesday. The AUD/USD pair may advance further as recent data shows that Australian wage growth remained elevated in the second quarter, prompting the Reserve Bank of Australia (RBA) to adopt a hawkish stance regarding its policy outlook.

The RBA maintained the cash rate at last week’s meeting to ensure inflation returns to its 2-3% target. RBA Governor Michele Bullock also dismissed the possibility of rate cuts for the next six months, emphasizing that the Australian central bank remains cautious about inflation risks and is prepared to raise rates again if necessary. Traders are now awaiting the release of Consumer Inflation Expectations and Employment data from Australia on Thursday.

The AUD/USD pair received support as the US Dollar lost ground following lower-than-expected Producer Price Index (PPI) data from the United States (US) released on Tuesday. Investors will likely observe the US CPI inflation report on Wednesday, which could offer some hints about the Federal Reserve’s (Fed) interest rate cut path.

Daily Digest Market Movers: Australian Dollar appreciates as traders expect the RBA to remain hawkish

• On Tuesday, Atlanta Fed President Raphael Bostic stated that recent economic data has increased his confidence that the Fed can achieve its 2% inflation target. However, Bostic indicated that additional evidence is required before he would support a reduction in interest rates, according to Reuters.
• The US Core Producer Price Index (PPI) rose by 2.4% year-on-year in July, against the previous reading of 3.0%. The index fell short of an estimate of 2.7%. The Core PPI remained unchanged.
• The US PPI rose 2.2% YoY in July from 2.7% in June, falling short of the market expectation of 2.3%. Meanwhile, the PPI increased 0.1% MoM after rising by a 0.2% in June.
• Australia's Westpac Consumer Confidence rose by 2.8% in August, swinging from a 1.1% fall in July. Meanwhile, the Wage Price Index remained steady with a 0.8% rise in the second quarter, slightly below the market expectation of a 0.9% increase.
• On Monday, Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser attributed persistent inflation to weaker supply and a tight labor market. Hauser also noted that economic forecasts are surrounded by significant uncertainty.
• The upside of the risk-sensitive AUD could be restrained due to safe-haven flows amid increased geopolitical tensions in the Middle East. On Sunday, Defense Minister Yoav Gallant informed US Defense Secretary Lloyd Austin that Iran's military activities indicate preparations for a significant strike on Israel, as reported by Axios writer Barak Ravid.
• On Sunday, Federal Reserve Governor Michelle Bowman stated that she continues to see upside risks for inflation and ongoing strength in the labor market. This suggests that the Fed may not be prepared to cut rates at their next meeting in September, according to Bloomberg.
• Last week, Westpac updated its RBA forecast, now predicting the first rate cut will occur in February 2025, a shift from the previously anticipated November 2024. They also revised their terminal rate forecast to 3.35%, up from the previous 3.10%. The RBA is now viewed as more cautious, needing stronger evidence before considering rate cuts.

Technical Analysis: Australian Dollar rises to near 0.6650

The Australian Dollar trades around 0.6640 on Wednesday. The daily chart analysis indicates that the AUD/USD pair moves upward within an ascending channel, signaling a strengthening bullish bias. Additionally, the 14-day Relative Strength Index (RSI) has surpassed the 50 level, confirming the bullish momentum.

On the upside, the AUD/USD pair might test the upper boundary of the ascending channel at the 0.6675 level. A breakout above this level could push the pair toward its six-month high of 0.6798, reached on July 11.

In terms of support, the AUD/USD pair might test the nine-day Exponential Moving Average (EMA) at 0.6587, followed by the lower boundary of the ascending channel and the throwback level at 0.6575. A decline below the latter could strengthen a bearish outlook, potentially pushing the pair toward the throwback level at 0.6470.

AUD/USD: Daily Chart