The Australian Dollar (AUD) has strengthened against the US Dollar (USD), with the AUD/USD pair gaining for the second consecutive day and trading around 0.7090 during Asian hours on Monday [2]. This appreciation is attributed to the Reserve Bank of Australia's (RBA) continued hawkish policy stance, as Governor Michele Bullock emphasized the bank's readiness to tighten policy further if inflation does not moderate as expected [2]. Societe Generale analysts described the RBA's statement as 'hawkish,' while Rabobank's strategy team remains unconvinced that the tightening cycle is complete, expecting one more rate hike later this year [2].
On the technical front, AUD/USD has cleared the 100 SMA and is approaching the 0.7200 resistance area, a level that has capped gains for much of the year [1]. The pair has recovered from late June lows near 0.6900, surpassing the 100 SMA and R1 at 0.7086, and is now closing in on R2 at 0.7146 [1]. A sustained move above 0.7146 could see buyers targeting the 0.7200 psychological level, with further upside potential toward 0.7300 and 0.7350 if bullish momentum persists [1]. Conversely, if sellers defend the 0.7146–0.7200 zone, a pullback toward the 100 SMA near 0.7050 or even the S1 Pivot Point at 0.6924 is possible [1].
The US Dollar has weakened amid softer-than-expected US economic data and shifting central bank expectations [2]. US Retail Sales fell by 0.6% month-over-month in July, missing the consensus of 0.1% growth, while annual growth slowed to 5.0% from 6.8% in June [2]. This, along with softer CPI and PPI data, has led traders to reduce bets on further Federal Reserve rate hikes, with the CME FedWatch tool showing a 33.1% chance of a hike next month, down from 44% last week [2].
Fed official Goolsbee's recent comments signaled a less hawkish tone on inflation, with the FXS Speechtracker score dropping to 4.6/10 from a historical average of 6.8/10, and the FXS Fed Sentiment Index falling by 2.36 points to 134.61 [2]. While this indicates a modest dovish shift, the index remains well above the neutral line, suggesting the Fed is still broadly hawkish, though the perceived bar for future easing has lowered slightly [2].
Looking ahead, key catalysts include the upcoming release of Australia's July labor market figures and the FOMC minutes from the Fed's July 29 meeting [1]. A strong Australian jobs report could further support the AUD, while confirmation of a hawkish Fed bias could revive demand for the USD [1].
CONCLUSION
The AUD/USD pair is benefiting from a hawkish RBA outlook and softer US economic data, pushing the pair toward a critical resistance zone near 0.7200. Market sentiment is cautiously optimistic for the AUD, but upcoming Australian labor data and FOMC minutes could shift the balance. Traders should monitor these events closely as they may determine whether AUD/USD breaks out of its long-term range.