The Australian dollar retreats from recent peak
- The Australian dollar dipped from the eight-month high of 0.6625 it hit on Thursday.
- Traders are closely watching the upcoming meeting between US Treasury Secretary Scott Bescent and Chinese officials set for next week in Stockholm.
- Michelle Bullock, the Governor of the Reserve Bank of Australia, reaffirmed her goal of maintaining low inflation and ensuring stability moving forward.
The Australian Dollar (AUD) experienced a decline against the US Dollar (USD) on Friday, marking the second consecutive day of losses. Following its peak of 0.6625, the AUD/USD pair is now trending downward.
Attention is focused on US trade discussions with key partners like China, which is significant for Australia given its status as the country’s largest trading partner. Bescent announced earlier this week that high-level talks with Chinese officials will occur in Stockholm next week.
During an event in Sydney, Bullock emphasized the importance of controlling inflation and highlighted ongoing uncertainties in the global economy.
AUD loses ground as USD strengthens ahead of manufacturing updates
- The US Dollar Index (DXY), which tracks the dollar against six major currencies, saw continued gains, trading near 97.60. The market awaits durable goods orders data for June later today.
- Initial claims for US unemployment fell to 217,000, down from 227,000 the previous week. This marks the sixth consecutive week of declines, reflecting the labor market’s resilience.
- The S&P Global US Composite Purchasing Managers Index (PMI) rose to 54.6 in July from 52.9 in June, indicating increased business activity. The Services PMI improved to 55.2, exceeding expectations, while the Manufacturing PMI fell to 49.5, slipping into contraction.
- Bescent mentioned that the next Federal Reserve Chair may be announced in December or January, mentioning he’s not in a rush to find a successor for Jerome Powell.
- Reports indicated that the EU and the US are caught in tariff transactions, imposing 15% tariffs on EU goods entering the US.
- President Trump has revealed a trade agreement with Japan involving a 15% tariff on Japanese exports to the US, along with a $550 billion investment from Japan into the US.
- Trump expressed optimism about a trade deal during a meeting with Philippine President Bonbon Marcos, downplaying any concerns regarding the Philippines’ relations with China.
- Governor Adriana Kugler stated that the US Central Bank should hold off on cutting interest rates for now due to impacts from the tariffs becoming evident in consumer prices.
- San Francisco Fed President Mary Daly suggested that expecting two interest rate cuts this year is a reasonable outlook, although she warned against procrastination.
- Governor Christopher Waller indicated the need for the US Central Bank to consider rate cuts at the July meeting because of rising economic risks.
- Data from Judo Bank and S&P Global indicated Australia’s combined PMI increased to 53.6 in July, marking its highest level since April 2022. The Services PMI surged to 53.8, while Manufacturing PMI came in at 50.6.
- The latest Reserve Bank of Australia minutes showed a consensus that further interest rate reductions are likely, with board members preferring to see signs of inflation slowdown before acting.
- Westpac reported ongoing weak momentum, with its index growth rate dropping from 0.11% in May to 0.03% in June, largely due to lower commodity prices.
AUD tests key support levels
As trading progressed, the AUD/USD pair hovered around 0.6590 on Friday. Technical analysis indicates a bullish trend, with the pair moving within a rising channel pattern. The 14-day relative strength index (RSI) is above the 50 mark, maintaining a bullish sentiment. Additionally, the pair remains above the nine-day exponential moving average (EMA), suggesting that short-term momentum is still intact.
For the AUD/USD pair, the immediate target is psychological resistance at 0.6650, followed by the upper limit of the rising channel around 0.6680.
Conversely, on the downside, the pair found significant support at 0.6561, coinciding with the 9-day EMA. A breach below this level could weaken short-term momentum, challenging the 50-day EMA at 0.6506 and perhaps testing the lower channel limit near 0.6480.
