The Australian Dollar (AUD) gained traction against the US Dollar (USD), with the AUD/USD pair trading near 0.7090 during the early Asian session on Monday. This movement is attributed to the weakening of the US Dollar as market participants scale back expectations for a Federal Reserve (Fed) rate hike, following weaker US economic data. Specifically, US Retail Sales declined by 0.6% month-on-month in July, compared to a 0.2% increase in June and below market expectations of a 0.1% rise. On a yearly basis, Retail Sales grew by 5.0% in July, down from a revised 6.8% in June. These figures have led to a decrease in the probability of a September Fed rate hike, with odds dropping from around 50% to 33.1% this week, according to the CME FedWatch tool [1].
On the Australian side, Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent stated last week that it would take 'some time for tighter monetary policy to have its full effect on economic activity and inflation,' but early evidence suggests the policy is working as intended. Societe Generale analysts noted that the RBA's latest communication maintained a hawkish tone, with Governor Bullock emphasizing the bank's readiness to act if inflation risks persist. This reinforces the message that policymakers remain vigilant and prepared to tighten policy further if necessary [1].
Technical analysis indicates that AUD/USD maintains a bullish near-term bias, trading above the 100-day simple moving average (SMA) and the Bollinger middle band. The Relative Strength Index (14) stands at 62.7, reflecting firm but not extreme positive momentum. Immediate resistance is identified at the Bollinger upper band near 0.7105, with a daily close above this level potentially paving the way for further gains. Initial support is seen at the 100-day SMA around 0.7060, followed by the Bollinger middle band at 0.7026 and the lower band near 0.6945, where deeper corrections may attract buyers [1].
Geopolitical developments are also being monitored, as Reuters reported that Israel has resumed airstrikes against Lebanon after a period of reduced activity. Any escalation in Middle East tensions could boost demand for safe-haven currencies like the US Dollar, potentially creating headwinds for the AUD/USD pair in the near term [1].
CONCLUSION
The Australian Dollar's recent gains are driven by fading expectations for a US Fed rate hike and a continued hawkish stance from the RBA. While technical indicators support a bullish outlook for AUD/USD, traders remain cautious due to potential geopolitical risks that could impact market sentiment. The market will also be watching upcoming Chinese economic data for further direction.