AUD/USD Price Analysis – Aug 22, 2024
Daily Price Outlook
Despite the hawkish sentiment surrounding the RBA's rate trajectory, the AUD/USD currency pair failed to sustain its early-day upward momentum and turned bearish around the 0.6738 level, hitting an intra-day low of 0.6727.
This downward trend can be attributed to the mild renewed strength of the US dollar, which gained traction following a slight recovery in Treasury yields on Thursday.
On the positive side, Australia's Judo Bank Composite PMI increased to 51.4 in August, fueled by stronger service sector growth.
However, the downside of the AUD/USD pair could be limited due to the hawkish stance adopted by the Reserve Bank of Australia (RBA) regarding its policy outlook.
RBA's Hawkish Stance and Strong Services PMI Support AUD/USD Pair
On the AUD front, the downside of the AUD/USD pair may be limited due to the Reserve Bank of Australia's (RBA) hawkish stance. The RBA's August Meeting Minutes revealed that the cash rate is likely to remain unchanged for some time.
Earlier this month, the board considered raising rates but decided that holding steady would better manage risks.
RBA Governor Michele Bullock emphasized that the central bank is ready to raise rates again if necessary to combat inflation. This decision marks the sixth consecutive meeting where the RBA has kept rates at 4.35%.
On the data front, Australia's Judo Bank Composite PMI rose to 51.4 in August, up from 49.9 in July, indicating the fastest expansion in three months.
This improvement was driven by a stronger services sector, even though manufacturing continued to decline. Meanwhile, the Services PMI increased to 52.2 in August from 50.4 in July, showing the fastest growth in services output in three months.
However, the Manufacturing PMI slightly rose to 48.7 from 47.5, indicating a continued, though slower, contraction in the sector for the seventh month in a row.
Therefore, the news is likely to support the AUD/USD pair. The RBA's hawkish stance and steady rates, combined with strong service sector growth, provide a positive outlook for the Australian dollar, despite ongoing manufacturing sector weakness.
Impact of US Rate Cut Expectations and Fed Caution on AUD/USD Pair
On the US front, the US Dollar (USD) gained slightly due to a minor recovery in Treasury yields on Thursday. However, it faced some challenges as the FOMC Minutes for July indicated that most Federal Reserve officials are likely to cut the benchmark interest rate in September.
Traders are closely watching Fed Chair Jerome Powell's upcoming speech at Jackson Hole.
According to the CME FedWatch Tool, the likelihood of a 25 basis point rate cut in September is now about 65.5%, down from 71.0% a day earlier. Meanwhile, the chance of a 50 basis point cut has increased to 34.5% from 29.0%.
Furthermore, Federal Reserve Governor Michelle Bowman expressed caution on Tuesday about making policy changes too quickly, citing risks to inflation. She warned that reacting too strongly to single data points could harm the progress made.
Meanwhile, Minneapolis Fed President Neel Kashkari suggested that discussing potential rate cuts in September might be appropriate due to concerns about a weakening labor market.
Therefore, the news could lead to a stronger AUD/USD pair as the expectations of a Fed rate cut, combined with ongoing caution from Fed officials, may weaken the USD, while the prospect of lower interest rates supports the Australian dollar.
AUD/USD - Technical Analysis
The AUD/USD pair is showing signs of strength, currently trading at $0.67517. The pivot point at $0.6772 will be crucial in determining whether the pair can sustain its upward momentum. Immediate resistance is at $0.6754, with further hurdles at $0.6771 and $0.6792.
If the price breaks above these levels, the pair could see further gains. On the downside, immediate support is found at $0.6714, followed by $0.6684 and $0.6666.
The RSI is nearing overbought territory at 69, indicating that the bullish momentum may soon face some resistance.
However, the 50-day EMA at $0.6662 is supportive, suggesting that the underlying trend remains positive.
Conclusion: Consider buying above $0.67372, with a target of $0.67715 and a stop loss at $0.67143.
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