AUD/USD Weakens Below 0.64200 Mark On Softer U.S. Dollar, RBA Expected To Leave Rates Unchanged
Key Takeaways:
- AUD/USD cross witnessed aggressive selling on Tuesday during the Asian session and moved below the 0.64200 mark
- Bets for one more 25bps rate hike before the year ends extend support to the greenback and help cap the upside for the AUD/USD pair
- Reserve Bank of Australia (RBA) is expected to keep its key interest rates unchanged at 4.1% later today, further undermining the Aussie dollar
The AUD/USD pair extended its recent sharp pullback from the vicinity of the 0.65234 level, or monthly high, and witnessed selling for the second successive day on Wednesday. This also marked the second day of a negative move in the previous three and dragged spot prices to a fresh weekly low, just below the 0.64200 mark during the mid-Asian session.
A U.S. Bureau of Labor Statistics report released on Friday showed the U.S. economy added 187,000 jobs in August 2023, compared to the downwardly revised 157,000 in July and more than market expectations of 170,000. Still, it was the third consecutive month with job gains falling below the 200,000 threshold, indicating a gradual easing of labor market conditions and suggesting the Federal Reserve (Fed) will likely leave its Fed Funds rate unchanged during the September meeting. In other news, the unemployment rate in the U.S. rose to 3.8% in August 2023 from 3.5% in July, the highest since February 2022 and above market expectations of 3.5%.
That said, markets are still pricing at least one more 25bps rate hike by the Fed by the end of this year, which remains supportive of rebounding U.S. Treasury Bond Yields and was seen as a key factor that assisted the U.S. Dollar Index (DXY), which measures the greenback against a basket of currencies, in attracting some intraday buying above the 104.100s mark on Tuesday and acted as a headwind for the AUD/USD pair. Apart from this, the risk-off mood and the weaker tone around the equity markets were also seen as another factor that underpinned the greenback and helped exert downward pressure on the AUD/USD cross.
Further contributing to the sentiment around the AUD/USD cross is the firm market expectation that the Reserve Bank of Australia (RBA) will keep its key interest rates unchanged at 4.1% during its September meeting later today amid cooling signs of inflation in Australia.
As we advance, investors look forward to the Australian docket featuring the release of the RBA Interest Rate Decision. Afterwards, investors will look for cues on future actions in the accompanying monetary policy statement. Any surprises in the announcement will directly impact the strength of the Australian dollar (AUD).
Technical Outlook: Four-Hours AUD/USD Price Chart
From a technical perspective, the AUD/USD cross-sharp rebound from the vicinity of the 0.65234 level/monthly peak, followed by the move below the 20 (blue) and 50 (red) day EMA levels, supported the case for further downside moves. A further increase in selling pressure beyond the current price level will pave the way for a drop toward the trend-channel support extending from the mid-August 2023 swing low. A decisive break below this support level will reaffirm the bearish thesis and pave the way for a drop toward the 0.63783 support level. A subsequent move below this support level would pave the way for a further decline toward the next support level at the 0.63635 level, about which, if sellers manage to breach this floor, downside pressure could accelerate further, paving the way for more profound losses around the AUD/USD pair.
On the flip side, the 0.64872 level now acts as an immediate hurdle ahead of the double top level at the 0.65213 level, which also coincides with the technically strong 200-day (yellow) Exponential Moving Average (EMA). A convincing move above these barriers would negate the bearish thesis and prompt aggressive technical buying around the shared currency. The AUD/USD cross could rally toward the 0.6600 mark before attacking the 0.66152 resistance level.
