Australian Dollar Eases from Multi-Month High, Fed-RBA Divergence Fuels Speculation

The Australian Dollar (AUD) dipped slightly against the US Dollar (USD) on Monday, retreating from its recent multi-month high. Despite this minor pullback, the Aussie remains buoyant, supported by expectations of continued policy divergence between the Federal Reserve (Fed) and the Reserve Bank of Australia (RBA).

Market Drivers: Fed Rate Cut Bets vs. Hawkish RBA

  • US Inflation Data in Focus: The upcoming US Consumer Price Index (CPI) report on Thursday will be closely watched, with forecasts suggesting a slight decline in headline inflation. Any signs of further easing could strengthen expectations of a September rate cut by the Fed.
  • Fed-RBA Policy Divergence: The Fed’s potential easing, coupled with the RBA’s likely hawkish stance due to persistent domestic inflation, could bolster the AUD/USD pair in the coming months.
  • Chinese Economy Concerns: Concerns about the slowing momentum of the Chinese economy remain a headwind for the Australian Dollar, potentially limiting its sustained recovery.
  • RBA’s Hawkish Outlook: The RBA’s recent minutes highlighted a discussion of potential rate hikes, indicating a more hawkish stance than previously anticipated. This could continue to support the AUD, especially if the Fed opts for rate cuts.

Technical Analysis: AUD/USD Retraces, Bullish Bias Persists

The AUD/USD pair experienced a minor correction on Monday, but the overall outlook remains positive. Technical indicators, such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), remain in positive territory, suggesting a strong bullish bias.

However, traders are cautious about potential overbought conditions, which could lead to a short-term pullback. Key support levels to watch include 0.6670, 0.6650, and 0.6630. The next bullish targets for the pair are at 0.6750 and 0.6780.