Australian dollar rises ahead of Fed Powell’s speech at the Jackson Hole Symposium

• Aussie dollar gains ground on improved risk sentiment on Friday.
• The AUD could appreciate further due to the sense of variety surrounding the RBA’s stance on its policy outlook.
• The US composite PMI indicated that business activity continued to expand, marking 19 consecutive months of expansion.

The Australian Dollar (AUD) is retracing recent gains against the US Dollar (USD) amid increased risk-on sentiment on Friday. Traders await US Federal Reserve (Fed) Chairman Jerome Powell’s speech at the Jackson Hole Symposium later in the North American session.

The AUD/USD pair could advance further due to the mood surrounding the Reserve Bank of Australia (RBA) regarding its policy outlook. RBA Governor Michele Bullock has expressed that the Australian central bank will not hesitate to raise interest rates again to combat inflation if necessary. Furthermore, the minutes of the RBA’s August meeting suggested that the cash rate could remain unchanged for an extended period.

The US dollar (USD) depreciates on Friday amid lower Treasury yields. However, the greenback received support from mixed S&P Global Purchasing Managers Index (PMI) data released on Thursday.

The US composite PMI fell slightly to 54.1 in August, a four-month low, down from 54.3 in July, but remained above market expectations of 53.5. This suggests that business activity in the US continues to expand, marking 19 consecutive months of growth.

Daily Digest Market Movers: Australian dollar appreciates on improving risk sentiment

• The CME FedWatch tool suggests markets are now pricing in a 73.5% chance of a 25 basis point (bps) Fed rate cut at its September meeting, up from 62.0% a year ago day. The probability of a 50 basis point rate cut fell to 26.5% from 38.0% a day earlier.
• The S&P Global US Services PMI rose to 55.2 in August 2024 from 55.0 in July, defying expectations of a decline to 54.0. Meanwhile, manufacturing PMI fell to 48.0 in August from 49.6 the previous month, below market expectations of 49.6 and signaling the second straight contraction in US factory activity at the strongest pace this year year.
• Judo Bank Australia’s Composite Purchasing Managers’ Index (PMI) rose to 51.4 in August from 49.9 in July. The increase marks the fastest expansion in three months, driven by a stronger performance in the services sector despite a sharper decline in manufacturing output.
• On Thursday, the President of the Federal Reserve Bank of Boston, Susan Collins, indicated that it would soon be appropriate to start cutting interest rates, stressing that the pace of these cuts will be guided by incoming data. Meanwhile, Kansas City Fed President Jeff Schmid noted that he is closely examining the factors behind the rise in the unemployment rate and will rely on the data to determine whether to support a rate cut next month.
• Judo Bank Australia PMI for services rose to 52.2 in August from 50.4 in July, marking the fastest expansion in services output in three months, according to preliminary data. Meanwhile, the manufacturing PMI rose slightly to 48.7 from 47.5, signaling a continued but slower decline in the health of the sector for the seventh straight month.
• The minutes of the FOMC’s July policy meeting indicated that most Fed officials agreed last month that they were likely to cut their benchmark interest rate at the next meeting in September as long as inflation continued to cool.
• On Tuesday, RBA minutes suggested that board members had considered a rate hike earlier this month, before ultimately deciding that keeping rates current would better balance risks. Furthermore, RBA members agreed that a rate cut was unlikely anytime soon.

Technical Analysis: The Australian Dollar bounces back from 0.6700 to return to the ascending channel

The Australian dollar is trading around 0.6710 on Friday. Daily chart analysis shows that the AUD/USD pair has broken below the ascending channel, suggesting a weakening of the bullish bias. However, the 14-day Relative Strength Index (RSI) remains above the 50 mark, supporting ongoing bullish momentum.

On the upside, the AUD/USD pair could test the upper limit of the ascending channel at the 0.6740 level. A return to the ascending channel would reinforce the uptrend and lead the pair to test the seven-month high of 0.6798. A break above this level could lead the pair to explore the region around the upper boundary of the ascending channel at the 0.6880 level.

For support, the AUD/USD pair may find support near the nine-day exponential moving average (EMA) at the 0.6684 level. If it breaks below this level, it could test the retracement level at 0.6575, followed by another retracement level at 0.6470.

AUD/USD: Daily chart