Australian Dollar holds losses after RBA Minutes

• The Australian Dollar loses ground as the RBA Index of Commodity Prices fell by 4.1% YoY in June.
• RBA Minutes emphasizes the need to remain vigilant as data suggested an upside risk for May's CPI.
• The US Dollar appreciates due to the higher US Treasury yields amid heightened expectations of the Fed reducing rates in 2024.

The Australian Dollar (AUD) extends its losses for the second successive day on Tuesday. This downturn could be attributed to the Reserve Bank of Australia's (RBA) Index of Commodity Prices, which fell by 4.1% year-on-year in June, following an upwardly revised 6.0% decline in the previous month. The June decline marks the mildest deflation in sixteen consecutive months.

The Minutes of the Reserve Bank of Australia’s (RBA) June monetary policy meeting, released Tuesday, indicated that the "board judged the case for holding rates steady stronger than hiking." The board emphasized the need to remain vigilant to upside risks to inflation, noting that data suggested an upside risk for May's Consumer Price Index (CPI).

The US Dollar (USD) appreciates due to the advance in the US Treasury yields. This could be attributed to the heightened expectations of the US Federal Reserve’s (Fed) deducting interest rates in 2024. The speech by Federal Reserve (Fed) Chairman Jerome Powell will be in the spotlight on Tuesday.

Daily Digest Market Movers: Australian Dollar declines due to softer Index of Commodity Prices

• The Melbourne Institute's Monthly Inflation Gauge has heightened concerns that the RBA might raise interest rates again in August. The gauge increased by 0.3% in June, maintaining the same pace as in May, marking the fourth consecutive month of rises and remaining at the highest since January.
• The Judo Bank Australia Manufacturing PMI dropped for the fifth consecutive month to 47.2 in June from 49.7 in May. This decline is the fastest deterioration since May 2020.
• The US Manufacturing Purchasing Managers Index (PMI) for June fell to 48.5, down from 48.7 in May. This figure was weaker than the expected 49.1, as reported on Monday.
• Chinese President Xi Jinping, as reported by Chinese state media on Monday, emphasized that fostering a healthy and stable development of China-Australia relations serves the fundamental and long-term interests of both countries and their peoples. Xi expressed readiness to collaborate with Australia in advancing toward a more mature, stable, and productive comprehensive strategic partnership between the two nations.
• On Friday, the Federal Reserve Bank of San Francisco President Mary Daly said that monetary policy is working. Still, it’s too early to tell when it will be appropriate to cut the interest rate. Daly stated, "If inflation stays sticky or comes down slowly, rates would need to be higher for longer,” per Reuters.
• The Reserve Bank of Australia’s (RBA) Deputy Governor Andrew Hauser. Hauser said it would be a “bad mistake” to formulate policy in response to a single inflation report. He emphasized that there is still a suite of economic data to come that will require detailed analysis, per Bloomberg.

Technical Analysis: Australian Dollar hovers around 0.6650

The Australian Dollar trades around 0.6640 on Tuesday. The analysis of the daily chart shows a neutral bias for the AUD/USD pair, which is consolidating within a rectangle formation. The 14-day Relative Strength Index (RSI) is at 50, also indicating neutral momentum. Future movements may provide a clearer directional trend.

The AUD/USD pair may face resistance near the upper boundary of the rectangle formation at around 0.6690, followed by the psychological level of 0.6700. Additional resistance is located at 0.6714, the highest level since January.

On the downside, the AUD/USD pair could find support near the 50-day Exponential Moving Average (EMA) at 0.6622. A break below this level could lead the pair to test the lower boundary of the rectangle formation near 0.6585.

AUD/USD: Daily Chart