AUD/USD Bulls Aim To Break Above Upper Limit Of Range As Hawkish RBA Meeting Minutes Boost Sentiment

Key Takeaways:

• AUD/USD cross witnessed fresh demand on Tuesday during the Asian session, supported by a combination of factors
• Retreating Treasury Bond yields undermine the greenback and helps limit further losses for the AUD/USD pair
• Hawkish RBA Meeting minutes overshadow a series of disappointing Chinese macro data
• Markets await the release of U.S. retail sales data for fresh directional impetus

AUD/USD pair seesawed between tepid minor gains and minor losses during the Asian session. The cross struggled to capitalize on extending Monday’s overnight pullback from the vicinity of the 0.64950 level and ran out of steam after attracting fresh buying in the last hour or so on the second day of the week. When speaking, the pair is up over 14 pips daily and is trading within striking distance of the upper limit (0.65028) of the range it has been confided in for the better part of yesterday and early today.

A fresh leg down in U.S. Treasury bond yields and a weaker risk tone helped revive the U.S. dollar supply, which was a key factor that undermined the AUD/USD cross. Apart from this, a generally upbeat tone around the equity markets further undermines the safe-haven greenback and helps limit further gains for the AUD/USD pair.

Additionally, the Minutes of the Reserve Bank of Australia (RBA) released earlier today revealed that despite the Central Bank leaving its cash rate unchanged during the August meeting, members of the RBA Monetary Policy Committee agreed that it was possible that some further tightening of monetary policy might be required to ensure that inflation returns to target in a reasonable timeframe. Whether or not a further increase in interest rates is needed would depend on the data and the evolving assessment of risks. Noteworthy, the minutes reveal that members considered two options for monetary policy at this meeting: raising the cash rate by a further 25 basis points; or holding the cash rate steady.

The immediate market implications of the hawkish RBA minutes saw the Aussie dollar rebound and rise significantly against the buck, in turn shrugging off China’s Central Bank’s decision to cut its MLF rates for the second time this year. Furthermore, the positive mood surrounding the AUD/USD cross overshadowed disappointing fresh macro data from China, which showed that Chinese retail sales, industrial production, and fixed asset investment rose less than expected in July while the urban unemployment rate ticked higher.

That said, the upside seems limited amid Speculation that the Federal Reserve (Fed) will lift its Fed Fund rates one last time before pivoting. The bets were raised after a U.S. Bureau of Labor Statistics (BLS) report released last Friday showed U.S. overall inflation rose more than expected in July, reversing a year-long cooling trend.

The hotter-than-expected PPI data came a day after another BLS report showed that consumer-level inflation rose slightly in July, supporting the case for a Fed pivot. However, the more robust PPI numbers, combined with July’s jobs report released earlier this month and the U.S. GDP data, have to a greater extent, reversed hopes that the Federal Reserve may refrain from tightening monetary policy further this year.

Further supporting the greenback is incoming data this week, which is expected to show a slight increase in the aggregate value of sales at the retail value across the U.S. Additionally, according to a preliminary report, the number of building permits issued by the government is expected to have risen last month. This, in turn, suggests the path of least resistance for the AUD/USD pair is to the upside and warrants caution for traders against submitting aggressive bullish bets.

As we advance, investors look forward to the U.S. docket featuring the release of retail sales and core retail sales data for July. The data will influence the U.S. dollar price dynamics and provide directional impetus for the AUD/USD pair.

Technical Outlook: Four-Hours AUD/USD Price Chart

From a technical perspective, using a four-hour price chart, the price rebounded modestly from the vicinity of the 0.64628 level early today and is currently trading within striking distance of the upper limit (0.65028) of the range it has been confided in for the better part of yesterday and early today. A subsequent break above the upper limit of the aforementioned range zone, followed by a four-hour candlestick above the 0.64988 horizontal level, will act as a fresh trigger for sidelined buyers to join and help push the price up. The AUD/USD pair price could rally toward tagging the 50-day (red) EMA level at 0.65443. Acceptance above this level will pave the way for a rally toward the downward-sloping trendline. A decisive break (bullish price breakout) above this resistance level will pave the way for an extension of the bullish rally toward the 0.66171 resistance level, about which, if the price pierces this barrier, buying interest could gain further momentum, creating the right conditions for an advance towards tagging the technically strong 200-day (yellow) EMA level at 0.66428. A convincing move above this level would negate any near-term bearish outlook and pave the way for a rally toward the supply zone ranging from 0.67392 - 0.67151 levels.

On the flip side, the lower limit of the range (0.64538) price has been confided in for the better part of yesterday, and early today now seems to act as an immediate hurdle, below which a bout of short-covering has the potential to drag the pair back towards the lower descending trendline. A subsequent break (bearish price breakout) below this support level would reaffirm the bearish bias and pave the way for further losses around the AUD/USD pair.