Australian Dollar extends losses as US Dollar improves due to risk-off mood

• The Australian Dollar depreciates for the fifth consecutive session on Friday.
• The downside for AUD may be limited due to a potential interest rate hike by the RBA.
• The US Dollar may struggle as soft labor data strengthens expectations of a Fed rate cut in September.

The Australian Dollar (AUD) extends its losing streak for the fifth successive session on Friday. This decline in the AUD/USD pair can be attributed to the strengthening of the US Dollar (USD) due to increased risk aversion. However, the downside for the AUD may be limited by higher-than-expected Employment Change figures, which indicate tight labor market conditions and raise concerns about a potential interest rate hike from the Reserve Bank of Australia (RBA).

Australian Bureau of Statistics on Thursday showed that Employment Change increased by 50,200 in June from May, surpassing market forecasts of 20,000. This data slightly shifted investors' expectations toward a potential rate hike from the Reserve Bank of Australia in August, with swaps implying a 20% probability, up from 12% previously, according to Reuters. However, the Unemployment Rate increased to 4.1% from 4.0%, contrary to forecasts of a steady outcome.

The US Dollar is supported by an increase in US Treasury yields. However, the upside for the greenback may be limited due to soft labor data, which strengthens market expectations of a rate cut decision by the Federal Reserve (Fed) in September.

According to CME Group’s FedWatch Tool, markets now indicate a 93.5% probability of a 25-basis point rate cut at the September Fed meeting, up from 85.1% a week earlier.

Daily Digest Market Movers: Australian Dollar declines due to increased risk aversion

• Reuters cited Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia, saying, "The current pace of employment growth suggests demand is resilient and cost pressures will remain. We think the RBA will stay the course and keep rates on hold, but August is certainly a live meeting."
• Westpac's summary of a note on inflation in Australia and the RBA indicates that Australia is expected to follow the same broad disinflation trend as other countries, given that they face largely similar economic shocks.
• US Initial Jobless Claims increased more than expected, data showed on Thursday, adding 243K new unemployment benefits seekers for the week ended July 12 compared to the expected 230K, and rising above the previous week’s revised 223K.
• On Wednesday, Fed Governor Christopher Waller said that the US central bank is ‘getting closer’ to an interest rate cut. Meanwhile, Richmond Fed President Thomas Barkin stated that easing in inflation had begun to broaden and he would like to see it continue,” per Reuters.
• During an interview with Bloomberg News on Tuesday, Donald Trump cautioned Fed Chair Jerome Powell against cutting US interest rates before November’s presidential vote. However, Trump also indicated that if re-elected, he would allow Powell to complete his term if he continued to "do the right thing" at the Federal Reserve.
• On Monday, Fed Chair Powell stated that the three US inflation readings from this year "add somewhat to confidence" that inflation is on track to meet the Fed’s target sustainably, suggesting that a shift to interest rate cuts may be imminent.
• The third plenum of the Chinese Communist Party's 20th National Congress continues today, being held from July 15 to 18. Standard Chartered expects cuts from the People's Bank of China, both in rates and the reserve requirement ratio (RRR), as GDP growth decelerated in Q2. China’s growth drivers remain uneven, and trade tensions are rising, with the US and EU imposing new tariffs on Chinese electric vehicles (EVs).

Technical Analysis: Australian Dollar hovers around 0.6700

The Australian Dollar trades around 0.6710 on Friday. The daily chart analysis shows that the AUD/USD pair has fallen below an ascending channel, signaling a weakening bullish bias. Although the 14-day Relative Strength Index (RSI) is slightly above the 50 level, a drop below this level would indicate the onset of bearish momentum.

Immediate support for the AUD/USD pair is seen at the psychological level of 0.6700. A decline below this level could put pressure on the pair to explore the throwback support around 0.6590.

On the upside, the AUD/USD pair might test the lower boundary of the ascending channel near the nine-day Exponential Moving Average (EMA) at 0.6726. A return into the ascending channel could bolster the bullish bias and potentially drive the pair to 0.6800 before the upper boundary of the channel at 0.6840.

AUD/USD: Daily Chart