Australian Dollar rebounds following RBA's hawkish hold

• AUD/USD recovered much of its previous losses in Tuesday’s session, following RBA decision.
• USD started the week softly, and its declines extended following weak Retail Sales figures.
• If the Fed and RBA policies diverge, the Aussie might see further gains.

The Australian Dollar (AUD) witnessed sizable gains against the US Dollar (USD) following Tuesday’s Reserve Bank of Australia (RBA) meeting, which concluded with a hawkish hold.

Despite the underlying weakness in the Australian economy, stubbornly high inflation has prompted the RBA to postpone rate cuts. On the US side, disinflation signals have boosted confidence in a September interest rate cut by the Federal Reserve (Fed).

Daily digest market movers: Australian Dollar buoyant after RBA’s hawkish hold

• Reserve Bank of Australia, as widely expected, left the cash rate static at 4.35% and reiterated that “the Board is not ruling anything in or out.”
• Furthermore, Governor Bullock confirmed that the board discussed rate hike options with a rate cut not being contemplated at this time.
• Resolute tone surrounding Australia's inflation backdrop implies that threshold for policy easement remains high.
• RBA disclosed that "inflation remains above target and proves persistent" and reiterated that "the Board anticipates it will be a while still before inflation is sustainably within the target range."
• On the US front, the US Census Bureau released that Retail Sales, a crucial measure of household spending, grew at a slower-than-anticipated pace in May of 0.1% against the projected 0.2%.
• Slower Retail Sales growth might create significant pressure on the US Dollar, as it is set to bolster investors' belief in the gradual disinflation process.
• CME FedWatch Tool indicates higher probabilities of interest rates starting to decrease from the September meeting, with one or more rate cuts implied in November or December.

Technical analysis: Bullish signals gain traction, pending confirmation

The Relative Strength Index (RSI) has now risen above 50, signifying a shift in momentum. Concurrently, the Moving Average Convergence Divergence (MACD) registers shrinking red bars, hinting at declining selling pressure and a potential reversal.

However, the short-term outlook remains negative unless buyers consolidate above the 20-day Simple Moving Average (SMA) now set at 0.6640. As the AUD/USD struggles with the 20-day SMA, investors should continue to monitor the region of 0.6560-0.6550, where the 100-day and 200-day Simple Moving Averages (SMAs) meet. That support level might be retested in the upcoming sessions if bulls fail to confirm their surge.