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The US dollar regained control after rebounding at 102.00 and closing above 103.00 psychological level attributed to better-than-expected jobless claim data. However, sentiment remains weak and is in a short-term bearish trend. Mid-term may see continuing range move between 102.00-106.00.
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The US Dollar remains stable as Federal Reserve officials emphasize a resilient labor market. Despite slower job growth, Federal Reserve officials suggested that the labor market remains healthy and not in a critical state.
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Federal Reserve President Thomas Barkin pointed out that businesses are currently managing their workforce by allowing natural attrition or reducing the pace of hiring rather than resorting to layoffs. This approach indicates a cautious but not overly pessimistic attitude toward the current economic climate.
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The AUD/USD pair experienced a slight decline to 0.6575 during Friday’s trading session, dropping by 0.30%. However, the Australian dollar’s potential losses may be mitigated by the Reserve Bank of Australia’s consistent hawkish stance and stronger inflation data from China.
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Considering the intricate economic outlook for Australia and the RBA’s inclination towards a hawkish approach in response to high inflation, markets continue to anticipate only a 25 basis points rate cut in 2024.
Reserve Bank of Australia remains firmly hawkish, rate cut is being pushed back.
The Australian dollar (AUD) could benefit from the Reserve Bank of Australia’s (RBA) firm hawkish stance and strong inflation data from China. The RBA decided to keep interest rates steady, with the board expressing that they are “not dismissing any possibility.” This highlights their commitment to remaining vigilant about potential inflation risks, suggesting that any policy changes will not be rushed. On Thursday, RBA Governor Michele Bullock emphasized the reduced probability of rate cuts, maintaining a hawkish position. She affirmed that the board “will not hesitate to lift rates if it needs to” in order to tackle persistent inflation. This indicates the central bank’s readiness to take action should inflationary pressures continue.
China strong PMI number in July further pushes the Aussie up
On the data front, China reported an increase in consumer prices, with the National Bureau of Statistics announcing a 0.5% year-on-year rise in July, exceeding the forecast of 0.3%. This marks the highest rate since February and eases concerns about a significant economic downturn in China.
The stronger-than-expected inflation data from China alleviates fears of a deeper economic slump, supporting global economic sentiment and, by extension, the Australian economy, given its close trade ties with China. Consequently, while there are positive developments coming out of Australia, the downside for the AUD remains limited.
Bank of England – Rate cut expectation has increased
The Bank of England is likely looking at a strong possibility of a rate cut after two out of the nine-strong committee have already started voting for rate cuts. Secondly, the inflationary pressure in the UK has subsided, especially the core CPI numbers. The biggest contributor to the rate cut narrative for the Bank of England is that the unemployment rate has risen to 4.2%. While UK GDP grew at a faster pace, the narrative of growth is likely due to the nature of pricing in the rate hike. Hence, the possibility of a rate cut stays. As for the sterling, we believe it is likely to see brief strength against the dollar before heading for the rate cut announcement next week. We remain positive on GBPUSD after rebounding at 1.2681 (Read here for previous commentary)
Technical outlook on AUDUSD
The Aussie dollar reached our 2nd target at 0.6800 before entering into a strong sell-off and although current selling pressure has eased but still early to conclude a recovery based on the technical price action. Below are the key pointers highlighting the prospect of another upside:
- Ichimoku sees a short-term downside within a longer-range bound scenario.
- Long-term MACD is showing a clear bearish signal over the longer-term period as the histogram has turned negative. The MACD/Signal line has performed a crossover at the top
- The stochastic oscillator is close to the bottom of the oversold zone, indicating a potential short-term exhaustion of the bear.
- Directional movement index’s DM- shows a slight decline after peaking at the top, indicating a near-term possible exhaustion of the bear.
Buy on rebound at 0.64800 and aim for a target of 0.6670. Should the Aussie dip below 0.6400, the pair will resume the downside.
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