Australian Dollar extends losses as traders digest US Retail Sales data

• AUD/USD shows a further decrease in Tuesday falling below 0.6730.
• Australian labor data will dictate short-term dynamics which might prompt a more hawkish RBA.
• Strong US data might not be enough to close the divergence between the Fed and RBA policies.

The Australian Dollar (AUD) continued to lose ground against the USD on Tuesday, falling to 0.6730. After an initial decline in Monday's session, the AUD has extended its losses as profit booking by investors heightens. However, the fundamental outlook hints at the AUD's potential resilience against the USD amidst monetary policy divergences between the Federal Reserve and the Reserve Bank of Australia (RBA).

Despite signs of frailty in the Australian economy, stubbornly high inflation has put the brakes on the RBA's intention of lowering interest rates. It is anticipated that the RBA will be one of the last central banks among the G10 countries to begin cutting rates, a factor that might limit the AUD's downside and extend its gains.

Daily digest market movers: AUD may see an upside as the labor market could justify a hike

• Investors are keeping a close eye on the Australian Employment data due for release on Thursday. The report is forecasted to show that in June, 20,000 job-seekers found employment, compared to 39,700 in May.
• If the unemployment rate remains steady at 4.0%, it will signify a robust labor market that may further fuel expectations of the RBA's policy-tightening stance.
• Retail Sales went from 0.1% to 0.0%, with the previous 0.1% revised to 0.3%.
• Retail Sales ex Autos rose by 0.4% after the 0.1% decline in May. That same decline has been revised to 0.1%.
• Market pricing currently indicates nearly a 50% chance of the RBA increasing rates in either September or November. Conversely, the odds of a rate cut by the Federal Reserve in September stand at 90%, subject to incoming data.

Technical Analysis: AUD/USD enters consolidation phase, overall outlook remains positive

Despite the recent losses, the AUD/USD's outlook remains positive, with the pair retaining levels not seen since January. Following a rally of over 1.5% in July, indicators including the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) approached overbought territory which prompted a slight correction.

The target for the buyers is to sustain between the 0.6700-0.6730 range while additional support lines are marked at 0.6680 and 0.6650.