Aussie dollar gains on key economic data

• The Australian dollar appreciates after the release of domestic economic data on Tuesday.
• Australia’s Westpac consumer confidence rose 2.8% in August, reversing a 1.1% decline seen in July.
• Pressure on the US dollar is eased due to the slim chance of a 50 basis point interest rate cut by the Fed.

The Australian dollar (AUD) extends gains against the US dollar (USD) following key domestic economic data released on Tuesday. The AUD/USD pair could appreciate due to driver sentiment around the Reserve Bank of Australia (RBA).

Australia’s Westpac consumer confidence rose 2.8% in August, swinging from a 1.1% drop in July. Meanwhile, the wage price index was flat, rising 0.8 percent in the second quarter, slightly below market expectations for a 0.9 percent increase.

The AUD/USD pair is receiving support as the US dollar (USD) faces challenges due to expectations of a potential interest rate cut by the Federal Reserve (Fed) in September. However, this pressure could be eased due to the slim chance of a 50 basis point rate cut at the September Fed meeting.

Traders will likely focus on the set of US producer inflation data due on Tuesday and consumer inflation figures on Wednesday. Traders are looking for confirmation that price growth remains stable.

Daily Digest Market Movers: Aussie advances on mixed mood surrounding RBA

• Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser on Monday attributed persistent inflation to weaker supply and a tight labor market. Hauser also noted that economic forecasts are surrounded by significant uncertainty.
• The upside of the risk-sensitive AUD could be limited due to refuge flows amid heightened geopolitical tensions in the Middle East. On Sunday, Defense Minister Yoav Gallant informed US Defense Secretary Lloyd Austin that Iran’s military activities indicate preparations for a significant strike on Israel, Axios writer Barak Ravid reported.
• On Sunday, Federal Reserve Governor Michelle Bowman said she continues to see upside risks to inflation and continued strength in the labor market. This suggests the Fed may not be ready to cut rates at their next meeting in September, according to Bloomberg.
• China’s consumer price index (CPI) rose 0.5 percent from a year ago in July, beating expectations of 0.3 percent and the previous reading of 0.2 percent. Meanwhile, the monthly index also rose 0.5 percent, swinging from a previous drop of 0.2 percent.
• Westpac has updated its RBA forecast, now predicting the first rate cut will take place in February 2025, a change from November 2024 previously anticipated. They also revised their terminal rate forecast to 3.35%, up from 3.10%. The RBA is now seen as more cautious, needing stronger evidence before considering rate cuts.
• On Thursday, Kansas City Fed President Jeffrey Schmid said easing monetary policy may be “appropriate” if inflation remains low. Schmid noted that the Fed’s current policy is “not that restrictive” and that while the Fed is close to its 2 percent inflation target, it has not yet fully achieved it, according to Reuters.
• Last week, Treasurer Jim Chalmers disputed the RBA’s view that the economy remains too robust and that large government budgets are contributing to prolonged inflation, according to Macrobusiness.
• Last week, RBA Governor Michele Bullock expressed that the Australian central bank would not hesitate to raise interest rates again to fight inflation if needed. The comments came just days after the RBA kept rates steady at 4.35% for the sixth consecutive meeting.

Technical Analysis: Aussie Oscillates Around 0.6600 Testing Retracement Support

The Australian dollar is trading around 0.6590 on Tuesday. Daily chart analysis shows that the AUD/USD pair is holding in an ascending channel, suggesting an uptrend. However, the 14-day Relative Strength Index (RSI) is consolidating below the 50 level. A rise above this level could signal an increase in bullish momentum.

On the other hand, the AUD/USD pair could test the upper limit of the ascending channel at the 0.6660 level. A breakout above this level could push the pair towards the six-month high of 0.6798 reached on July 11.

In terms of support, the AUD/USD pair is testing immediate support at the retracement level at 0.6575. A break below this level could reinforce a bearish trend, potentially leading the pair to the lower limit of the ascending channel near 0.6560, followed by the retracement level at 0.6470.

AUD/USD: Daily chart