RBA’s Hawkish Stance and Judo Bank PMI Boost AUD/USD Despite US Dollar Strength

The AUD/USD currency pair saw a dip, falling to an intra-day low of $0.6727 after initially showing strength around the $0.6738 mark.

This decline can be attributed to the mild recovery in the US dollar, supported by a slight uptick in Treasury yields. Despite this, the downside for the AUD/USD remains limited, thanks to the Reserve Bank of Australia’s (RBA) hawkish stance on its rate trajectory.

The au Jibun Bank Japan Services PMI increased to 54.0 in August 2024 from a final 53.7 in the prior month, flash data showed. It was the highest figure since April.https://t.co/521E2boQ5F pic.twitter.com/M6U5fROO3p

— TRADING ECONOMICS (@tEconomics) August 22, 2024

The RBA’s August meeting minutes indicated that the cash rate is expected to stay steady, reflecting the central bank’s cautious approach to managing inflation risks.

Australia’s economic data offers further support for the pair. The Judo Bank Composite PMI rose to 51.4 in August, marking the fastest expansion in three months, driven by robust growth in the services sector.

Although manufacturing remains weak, the uptick in services has provided a much-needed boost to the Australian dollar.

Fed’s Rate Cut Expectations and US Dollar Volatility

On the US side, the dollar gained modestly following a recovery in Treasury yields. However, the FOMC Minutes from July hinted at a potential rate cut in September, leading to mixed sentiment.

All eyes on Powell at Jackson Hole

The market's 33% chance of a 50bp cut seems off. Fed members are talking about GRADUAL cuts.

Expect a hawkish tone at Jackson Hole, possibly catching investors off guard.

Are you ready for a cut repricing this Friday? pic.twitter.com/eHHk4jJL1e

— Cryp__toad 🐸 (@Cryp__toad) August 21, 2024

According to the CME FedWatch Tool, the probability of a 25 basis point rate cut in September now stands at 65.5%. Federal Reserve officials remain cautious, with Governor Michelle Bowman warning against hasty policy changes that could derail inflation control efforts.

This caution, combined with discussions about possible rate cuts, suggests that the USD may face further pressure, potentially favouring the AUD/USD pair.

AUD/USD Price Forecast and Trading Strategy

Currently, the AUD/USD pair trades at $0.67517. The pivot point at $0.6772 will be key in determining whether the pair can continue its upward momentum.

Immediate resistance is at $0.6754, with further barriers at $0.6771 and $0.6792. A break above these levels could lead to additional gains.

On the downside, support is seen at $0.6714, followed by $0.6684 and $0.6666. The RSI stands at 69, indicating the pair is nearing overbought conditions.

However, the 50-day EMA at $0.6662 remains supportive, suggesting a positive underlying trend.

Conclusion: Consider buying above $0.67372, targeting $0.67715, with a stop loss at $0.67143.