Australian Dollar appreciates as traders expect RBA to maintain current interest rates

• The Australian Dollar advances ahead of Tuesday’s RBA policy decision.
• The RBA is expected to maintain the Official Cash Rate at 4.35% for the sixth consecutive meeting.
• The US Dollar declines as recent downbeat labor data fuels odds of a Fed rate cut in September.

The Australian Dollar (AUD) recovers its recent losses ahead of the Reserve Bank of Australia's (RBA) monetary policy decision scheduled for Tuesday. The RBA is widely anticipated to maintain the Official Cash Rate (OCR) at 4.35% for the sixth consecutive meeting. Traders will likely closely watch RBA Governor Michele Bullock's speech, which may provide insights into the Board's future policy direction.

The AUD faced challenges against the US Dollar (USD) due to central banks’ rapid policy adjustments and increasing fears of a hard landing for the US economy. Additionally, the second-quarter inflation data has diminished expectations for another RBA rate hike. Markets estimate an RBA rate cut in November, a move anticipated much earlier than previously forecasted for April next year.

The US Dollar loses ground as expectations grow for a 50-basis point (bps) interest rate cut by the US Federal Reserve (Fed) in September. The CME FedWatch tool indicates a 74.5% probability of this cut occurring at the September meeting, a significant increase from the 11.4% chance reported a week earlier.

Daily Digest Market Movers: Australian Dollar advances ahead of RBA policy decision

• Federal Reserve Bank of San Francisco President Mary Daly expressed increased confidence on Monday that US inflation is moving towards the Fed's 2% target, according to Reuters. Daly noted that “risks to the Fed's mandates are becoming more balanced and that there is openness to the possibility of cutting rates in upcoming meetings.”
• Chicago Fed President Austan Goolsbee stated on Monday that the US central bank is prepared to act if economic or financial conditions worsen. Goolsbee emphasized, "We're forward-looking about it, and so if the conditions collectively start coming in like that on the through line, there’s deterioration on any of those parts, we’re going to fix it.” according to Reuters.
• US ISM Services PMI rose to 51.4 in July, from the previous reading of 48.8 reading. The index has exceeded the market expectation of 51.0 reading.
• The Judo Bank Australia Composite PMI dropped to 49.9 in July from 50.2 in June, falling below the neutral 50 mark for the first time since January. The Services PMI decreased to 50.4 in July from 51.8 in June. While this represents the sixth consecutive month of expansion in services activity, the growth rate was marginal and the slowest observed in this sequence.
• US Nonfarm Payrolls (NFP) increased by 114K in July from the previous month of 179K (revised down from 206K). This figure came in weaker than the expectation of 175K, data showed on Friday.
• US Average Hourly Earnings eased to 0.2% month-over-month in the same reported period, below the market consensus of 0.3%. On an annual basis, the figure decreased to 3.6% from the previous reading of 3.8%.
• On Tuesday, China's Caixin Services Purchasing Managers Index (PMI) rose to 52.1 in July, from June's 51.2 reading. The index has exceeded the market expectation of a 51.4 reading. Last week, Caixin Manufacturing PMI posted a reading of 49.8 for July, falling short of the expected reading of 51.5 and the previous reading of 51.8. Since both nations are close trade partners, volatility in the Chinese economy can significantly impact the Australian market.

Technical Analysis: Australian Dollar moves above 0.6500

The Australian Dollar trades around 0.6520 on Tuesday. The daily chart analysis shows that the AUD/USD pair has breached above the descending channel, indicating a weakening of a bearish bias. The 14-day Relative Strength Index (RSI) is slightly up the oversold 30 level, which suggests a potential for more upward correction.

The AUD/USD pair could find immediate support around the throwback support of 0.6470 level, followed by the lower boundary of the descending channel around the level of 0.6450

On the upside, resistance is first encountered at the nine-day Exponential Moving Average (EMA) at 0.6540, followed by the "throwback support turned resistance" at 0.6575 level. A breakout above the latter could propel the AUD/USD pair toward a six-month high of 0.6798.

AUD/USD: Daily Chart