Australian Dollar moderates gain, RBA’s hawkish stance to limit downside

• AUD/USD experienced a slight drop, adjusting to 0.6745 on Wednesday.
• The persistent hawkish views of the RBA keep backing the Aussie versus its peers.
• Dovish bets on the Fed weaken the USD.

On Wednesday, the AUD/USD is seeing a slight decline as traders digest the nearly 2% rally from the last sessions. The discourse on monetary policy divergence between the Federal Reserve (Fed), considering a less aggressive approach toward interest rates, and the unwavering position of the Reserve Bank of Australia (RBA) remains the mover of the pair, which put the Aussie ahead of the Greenback.

Despite the mixed Australian economic outlook and the RBA's hawkish stance driven by high inflation, markets are projecting only a 25-basis-point easing for 2024, maintaining some support for the Aussie.

Daily digest market movers: Aussie's rally tempered, softer stance by Fed opens the upside

• Softening US labor market data suggests that the Fed may adopt a less aggressive stance, leading to a potential weakening of the USD.
• In addition, the July Federal Open Market Committee (FOMC) Minutes showed that most of the participants were open to a September cut, which adds ammunition to the argument that the Fed will turn dovish at its next meeting.
• On the other hand, the RBA has clearly mentioned that the bank is not considering cuts for the moment, and this divergence is pushing the pair upwards.
• However, incoming data from both countries will continue to guide the pair’s trajectory.
• Markets are seeing high odds of a 100 bps cut by the Fed by year-end, while investors see little probability of a 25 bps cut by the RBA.

AUD/USD technical outlook: AUD/USD uptrend persists but with lower momentum

Technical analysis suggests that the AUD/USD pair has maintained its upward trajectory over the last few sessions. The Relative Strength Index (RSI), which indicates market momentum, has risen near the 70 benchmark. This hints at overbought conditions in recent sessions.

Additionally, the Moving Average Convergence Divergence (MACD) indicator confirms this bullish tone with the rise of green bars, an indication of prevailing bullish sentiment.

Looking ahead, the pair is likely to encounter resistance around the 0.6750 level. For any significant push through this level, traders should monitor volume and RSI closely. Supports are seen within the 0.6700-0.6650 zone.