Australian Dollar depreciates as US Dollar holds ground on hawkish Fed

• The Australian Dollar declines as the US Dollar remains stronger on the hawkish Fed.
• The Aussie Dollar may limit its downside due to the RBA’s hawkish stance on rates trajectory.
• The US Dollar remains stable as Fed officials delay the timing of the first interest rate cut in 2024.

The Australian Dollar (AUD) extends its losses for the third successive session on Monday. However, the AUD/USD pair may limit its downside due to the hawkish stance of the Reserve Bank of Australia (RBA). The RBA Governor Michele Bullock said during her latest press conference that the Board discussed potential rate hikes, dismissing considerations of rate cuts in the near term, as per ABC News.

The US Dollar (USD) remains stable as Federal Reserve (Fed) officials delay the timing of the first interest rate cut this year. According to the CME FedWatch Tool, investors are now pricing in nearly 65.9% odds of a Fed rate cut in September, down from 70.2% a week earlier.

Daily Digest Market Movers: Australian Dollar declines due to hawkish Fed

• The ASX 200 Index fell below 7,750 on Monday, relinquishing some of the gains from the previous session. This decline follows a weak lead from Wall Street, where Nvidia and other artificial intelligence-related chip stocks faced heavy selling after a strong run.
• The People's Bank of China injected 50 billion Yuan via seven-day reverse repos, maintaining the reverse repo rate at 1.8%. Any change in the Chinese economy could impact the Australian market, as China and Australia are close trade partners.
• Investors are likely to be cautious ahead of this week's Australian inflation data. Markets have significantly reduced their expectations for a RBA’s rate cut this year, with an easing not anticipated until April next year.
• On Friday, the US Composite PMI for June surpassed expectations, rising to 54.6 from May’s reading of 54.5. This figure marked the highest level since April 2022. The Manufacturing PMI increased to a reading of 51.7 from a 51.3 figure, exceeding the forecast of 51.0. Similarly, the Services PMI rose to 55.1 from 54.8 in May, beating the consensus estimate of 53.7.
• As per a Bloomberg report, Fed Bank of Richmond President Tom Barkin said on Thursday that the central bank is well-positioned with the necessary firepower for the job, but will learn a lot more over the next several months. Meanwhile, Fed Bank of Minneapolis President Neel Kashkari noted that it will probably take a year or two to get inflation back to 2%.

Technical Analysis: Australian Dollar remains below 0.6650

The Australian Dollar trades around 0.6630 on Monday. Analysis of the daily chart shows a neutral bias for the AUD/USD pair as it consolidates within a rectangle formation. The 14-day Relative Strength Index (RSI) is positioned on the 50 level, further movement may give a clear directional trend.

The AUD/USD pair may find support around the 50-day Exponential Moving Average (EMA) at 0.6612, with additional support at approximately 0.6585, marking the lower boundary of a rectangle formation.

On the upside, the AUD/USD pair may encounter resistance near the upper boundary of the rectangle formation around 0.6700. Beyond that, potential resistance levels include the high of 0.6714 observed since January.

AUD/USD: Daily Chart