The Australian dollar is paring recent gains on rising risk-on sentiment

• Aussie drops as US dollar advances on improved Treasury yields.
• AUD/USD’s downside could be limited due to dovish sentiment around the Fed.
• The US dollar could face challenges as the chances of a 25 basis point rate cut by the Fed increase.

The Australian dollar (AUD) is lower against the US dollar (USD) as traders await the ISM Manufacturing PMI data due on Tuesday. However, the AUD/USD pair may find some support amid rising expectations of the US Federal Reserve’s (Fed) policy outlook.

Traders are now focusing on Australia’s Q2 gross domestic product (GDP) and July trade balance data, as well as an upcoming speech by Reserve Bank of Australia (RBA) Governor Michele Bullock later in the week , to gather more information about the central bank driver. stance on monetary policy.

The US dollar is strengthening as Treasury yields continue to rise, but gains may be capped by rising expectations of a 25 basis point rate cut by the Fed in September. Traders will turn their attention to upcoming US employment data, particularly August’s Non-Farm Payrolls (NFP), for more information on the potential timing and extent of Fed interest rate cuts.

Daily Digest Market Movers: Aussie drops despite RBA calls

• Australian building permits rose 10.4% month-on-month in July, rebounding sharply from a 6.5% decline in June, marking the strongest increase since May 2023. On an annual basis, the growth rate of reached 14.3%, a significant rebound from the previous decline of 3.7%.
• China’s Caixin Manufacturing PMI rose to 50.4 in August from 49.8 in July, which is particularly noteworthy given China’s close trade relationship with Australia.
• The US Bureau of Economic Analysis reported on Friday that the Personal Consumption Expenditure (PCE) Price Index rose 2.5% year-on-year in July, matching the previous reading of 2.5% but below the 2. 6% Meanwhile, core PCE, which excludes volatile food and energy prices, rose 2.6% year-on-year in July, in line with the previous figure of 2.6% but slightly below the consensus forecast of 2, 7%
• US Gross Domestic Product (GDP) grew at an annualized rate of 3.0% in the second quarter, beating both the forecast and the previous growth rate of 2.8%. In addition, initial jobless claims showed that the number of people filing for unemployment benefits fell to 231,000 in the week ended Aug. 23, down from 233,000 previously and slightly below the 232,000 expected.
• Australia’s private equity spending unexpectedly fell 2.2% in the second quarter, reversing from an upwardly revised 1.9% expansion in the previous period and missing market expectations for a 1.0 increase %. This marks the first contraction in new capital spending since the third quarter of 2023.
• Australia’s monthly consumer price index (CPI) rose 3.5% from a year earlier in July, down from June’s 3.8% but slightly above the market consensus of 3.4%. Despite the slight drop, it marks the lowest CPI figure since March.
• Atlanta Federal Reserve President Raphael Bostic, a prominent FOMC hawk, indicated last week that it might be “time to move” on rate cuts because of further declines in inflation and a higher-than-expected unemployment rate. FXStreet’s FedTracker, which rates the tone of Fed officials’ speeches on a scale of 0 to 10 using a custom AI model, rated Bostic’s words as neutral with a score of 5.6.

Technical analysis: The Australian dollar remains above 0.6750

The Australian dollar is trading around 0.6780 on Tuesday. Looking at the daily chart, the AUD/USD pair is positioned above the nine-day exponential moving average (EMA), suggesting a near-term bullish trend. Additionally, the 14-day Relative Strength Index (RSI) remains above the 50 level, reinforcing the overall bullish trend.

In terms of resistance, AUD/USD may challenge the immediate barrier at the seven-month high of 0.6798. A break above this level could strengthen the ongoing bullish momentum, potentially pushing the pair towards the psychological level of 0.6900.

On the downside, the AUD/USD pair may test immediate support around the nine-day EMA at 0.6767, followed by the 14-day EMA at 0.6743. A break below these EMAs could weaken the uptrend and increase downward pressure, potentially leading the pair towards the 0.6575 retracement level, with a further decline potentially targeting the lower support at 0.6470.

AUD/USD: Daily chart