Australian Dollar pulls back from six-month highs

• The Australian Dollar declines possibly due to risk aversion on Friday.
• The AUD may limit its downside due to rising expectations of the RBA maintaining a hawkish stance.
• Fed’s Goolsbee stated that the US economy appears to be on track to achieve 2% inflation.

The Australian Dollar (AUD) continues to retreat on Friday after reaching a six-month high of 0.6798 in the previous session. The AUD/USD pair found support as the US Dollar (USD) weakened following softer-than-expected US Consumer Price Index (CPI) data in June. This has increased expectations of a potential Federal Reserve (Fed) rate cut in September.

The AUD may limit its downside as speculation grows that the Reserve Bank of Australia (RBA) might delay the global rate-cutting cycle or even raise interest rates again. Persistently high inflation in Australia prompts the RBA to maintain a hawkish stance.

The US Dollar (USD) remains subdued amid lower US Treasury yields. Investors in the fed funds futures market have increased their bets on a rate cut by the US Federal Reserve starting in September. According to CME Group’s FedWatch Tool, markets are now pricing in nearly 89% odds of a rate cut at the September Fed meeting, up from 73% on Wednesday.

Daily Digest Market Movers: Australian Dollar edges lower due to risk aversion

• Federal Reserve Bank of Chicago President Austan Goolsbee said on Thursday that the US economy appears to be on track to achieve 2% inflation. This suggests Goolsbee is gaining confidence that the time for cutting interest rates may soon be approaching. He also stated "My view is, this is what the path to 2% looks like," Goolsbee said, according to Reuters.
• The US Consumer Price Index (CPI) declined by 0.1% month-over-month in June, marking its lowest level in more than three years. On a yearly basis, the headline CPI increased by 3.0% in June, down from a 3.3% rise in May and below the market consensus of 3.1%.
• The core CPI, which excludes volatile food and energy prices, rose by 3.3% year-over-year in June, compared to May's increase of 3.4% and the same expectation. Meanwhile, the core CPI increased by 0.1% month-over-month, against the expected and prior reading of 0.2%.
• Australia's Consumer Inflation Expectations for July came in at 4.3%, slightly lower than the previous reading of 4.4%.
• Federal Reserve Board Governor Lisa Cook stated on Wednesday, "My baseline forecast...is that inflation will continue to move toward target over time, without much further rise in unemployment," according to Reuters.
• On Wednesday, Fed Chair Jerome Powell emphasized the need to closely monitor the labor market, noting that it has significantly deteriorated. Additionally, Powell expressed confidence in the downward movement of inflation.
• On Tuesday, Fed Chair Jerome Powell answered questions before the Senate Banking Committee on the first day of his Congressional testimony. Powell stated, "More good data would strengthen our confidence in inflation." He emphasized that a "policy rate cut is inappropriate until the Fed gains greater confidence that inflation is headed sustainably toward 2%." He also noted that "first-quarter data did not support the greater confidence in the inflation path that the Fed needs to cut rates."

Technical Analysis: Australian Dollar hovers around 0.6750

The Australian Dollar trades around 0.6760 on Friday. The analysis of the daily chart shows that the AUD/USD pair consolidates within an ascending channel, indicating a bullish bias. Furthermore, the 14-day Relative Strength Index (RSI) remains above the 50 level, confirming the ongoing bullish momentum.

The AUD/USD pair may retest the upper boundary of the ascending channel at approximately 0.6790 and the psychological level of 0.6800.

On the downside, the AUD/USD pair may find support around the 50-day Exponential Moving Average (EMA) at 0.6698. Further support appears around the lower boundary of the ascending channel at 0.6680. A break below this level could push the pair toward the throwback support around 0.6590.

AUD/USD: Daily Chart