- The RBA is in the spotlight, pushing the AUD/USD slightly higher.
- EU-US trade tensions are weighing on the USD, as pressure mounts on the Fed.
- Technical analysis for AUD/USD: Moving beyond the key moving average in a rising wedge.
The Australian Dollar (AUD) gained ground against the US Dollar (USD) on Monday, driven by escalating EU-US trade tensions and increasing worries about the independence of the Federal Reserve.
At this point, AUD/USD is trading above 0.6520, with attention now turning to the minutes from the Reserve Bank of Australia’s July policy meeting, set to be released soon.
Attention on the RBA as the market anticipates potential interest rate cuts in August
The Reserve Bank of Australia (RBA) will publish the minutes from its July meeting on Tuesday, which unexpectedly kept cash rates stable at 3.85%.
These minutes are expected to offer a clearer picture of the central bank’s reasoning, highlighting various viewpoints from policymakers and their evaluations of inflation and growth prospects.
Given that inflation continues to rise and economic activity shows signs of strain, all eyes are on the upcoming August meeting, where rate cuts are broadly anticipated. While a 25 basis point cut seems likely, there’s speculation swirling around the possibility of a more aggressive 50 basis point reduction, which could shift market sentiments. If substantial cuts look feasible, the USD’s support for the AUD might strengthen, particularly if yield differentials widen.
Rising EU-US trade tensions put strain on the USD amid growing political pressure on the Fed
Meanwhile, the increasing trade tensions between the EU and the US have added pressure on the USD. President Trump has indicated that even if a trade agreement is reached, the EU could still face tariffs ranging from 15% to 20% on a wide range of exports to the US.
These proposed tariffs would add to existing sector-specific taxes, like a 25% tariff on auto parts and a 50% duty on steel and aluminum. Trump has also mentioned that sectors like pharmaceuticals and semiconductors may soon be subject to significant fees.
This talk of tariffs is raising alarms at the Fed, which is now hesitant to adjust interest rates before the effects of trade policies fully manifest. Additionally, doubts about the Fed’s independence have introduced new uncertainty. Treasury Secretary Scott Bescent, speaking to CNBC on Monday, suggested it might be time to reassess the institution’s effectiveness.
Despite the political pushes for looser monetary policy, market expectations are mixed. Currently, as per the CME FedWatch tool, the likelihood of a 0.25% rate cut in September stands at 56.2%, while the chances of maintaining the current rate have risen to 42.3%.
AUD/USD Technical Analysis: Maintaining Uptrends in Rising Wedges, Surpassing Key Moving Averages
The daily chart for AUD/USD indicates that the uptrends, supported by the recent Golden Cross, are holding. This occurs when the 50-day exponential moving average (EMA) reflects upward momentum beyond the 200-day EMA.
Currently, price movements are within a rising wedge pattern, which has been defining support and resistance levels.
Prices are being supported by both a 50-day EMA around 0.6492 and a 200-day EMA at 0.6444, which bolsters the recent bullish outlook.
The main resistance lies near 0.6550 at the 61.8% Fibonacci retracement level, marking a downswing from September to April.
The target is set even higher, at a psychological level of 0.6600, with an additional goal around 0.6688 in November.
On the downside, robust support is noted at the 50% Fibonacci level of 0.6428, closely aligning with the lower boundary of the wedge. A break below this level could signal waning momentum, especially if prices slip under the 200-day EMA.
The relative strength index (RSI) is neutral at 51, showing no significant momentum in either direction.
