The Australian Dollar (AUD) faced headwinds on Tuesday following remarks from Sarah Hunter, Assistant Governor of the Reserve Bank of Australia (RBA). The currency dipped against the US Dollar (USD) just a day after it had seen gains as the USD struggled ahead of the imminent Federal Reserve (Fed) policy meeting. While the AUD appeared to have a potential boost from a recent commercial agreement between China and the US regarding TikTok’s transfer into American ownership, it could not maintain its upward momentum.
Fox news: The agreement, which is set to receive final approval during a call between US President Donald Trump and Chinese President Xi Jinping, signals a potentially positive turn in US-China relations. Trump declared on social media that the latest trade talks went “VERY WELL!” suggesting diplomatic relations between the two countries remain solid.
However, Sarah Hunter’s comments on inflation and consumer spending may have created uncertainty for the Australian currency. She highlighted that the RBA is “close to getting inflation to target” but emphasized the need for a forward-looking approach due to the delayed effects of monetary policy. Hunter stated that the RBA is closely monitoring consumer spending, indicating a balanced risk outlook while striving to maintain close to full employment in the economy.
Support for the AUD seems to have waned amid diminishing expectations for further rate cuts from the RBA. Market swaps indicate an 86% likelihood that monetary policy will remain unchanged in September, bolstered by Australia’s positive trade surplus for July, stronger second-quarter GDP figures, and rising consumer inflation expectations.
The US Dollar Index (DXY), which measures USD value against several major currencies, is also extending its losses, trading around 97.20. Traders are keenly awaiting US Retail Sales data for August, which may provide insight into consumer spending trends.
In the US, the Senate has recently confirmed Stephen Miran to the Federal Reserve Board, a significant development given that he is the first executive-branch official to join since 1935. The Fed is widely anticipated to enact a 25-basis-point rate cut during its upcoming September meeting, although there remains a small possibility of a more aggressive 50-basis-point reduction. Recent data, including a sharp increase in weekly jobless claims, has contributed to expectations of multiple rate cuts this year, with analysts from Morgan Stanley and Deutsche Bank projecting reductions at each of the Fed’s remaining meetings.
Meanwhile, economic indicators from China show mixed signals; Retail Sales rose by 3.4% year-over-year in August, falling short of the anticipated 3.8%, while Industrial Production increased by 5.2%, also below expectations. The National Bureau of Statistics (NBS) indicated a steady economic operation but noted challenges faced by firms due to external economic pressures.
The AUD/USD pair is trading around 0.6660, currently navigating an ascending channel pattern on the daily chart, suggesting a bullish market sentiment. Should the pair manage to break through the 11-month high of 0.6687 established in November 2024, it may further target the upper channel boundary near 0.6700. Initial support is anticipated at the nine-day Exponential Moving Average (EMA) of 0.6621, followed by the channel’s lower boundary around 0.6570.
Overall, the Australian Dollar’s position remains delicate amid a complex landscape of economic indicators both domestically and abroad, with policymakers and investors closely following developments that could impact monetary policy and global trade dynamics.
