Australian Dollar drops as expectations for an RBA rate cut increase

• The Australian dollar is set to decline as a 25 basis point rate cut by the RBA is widely anticipated next week.
• Expectations for the RBA rate cut have increased as core inflation has decreased, coinciding with ongoing economic activity in June.
• Trump has appointed Stephen Milan to take over from Stephen Milan on a committee of Federal Reserve Presidents.

The Australian Dollar (AUD) is expected to weaken against the US Dollar (USD) on Friday following three days of gains. Traders are estimating over a 92% chance of a 25 basis point reduction by the Reserve Bank of Australia (RBA) next week, which should push the AUD/USD pair lower and adjust the cash rate to 3.60%.

The likelihood of an RBA rate cut has grown due to rising unemployment and slow wage growth. Core inflation dipped to 2.7% in June, aligning with the RBA’s target of 2-3%. In another positive indicator, Australia’s trade surplus increased to 5,365 million before June, surpassing the forecast of 3,250 million. This was aided by a 6.0% rise in exports, reflecting continued economic strength.

US President Donald Trump has cautioned his Australian trading partner regarding potential tariffs that could mirror the recently suggested 25% tax on Russian oil imports previously announced for India.

The Australian Dollar faces hurdles as the US Dollar rebounds

• The US Dollar Index (DXY), which gauges the USD against six key currencies, stands at approximately 98.10 at the moment.
• President Trump appointed Steven Milan, the Council of Economic Advisors’ chairman, to replace Adriana Coogler on the federal committee. The market is also watching Trump’s considerations for replacing the Fed’s chair, with Fed Gov. Christopher Waller emerging as a favored option amongst Trump’s advisors, as reported by Bloomberg.
• CME FedWatch tools indicate nearly a 93% probability of a 25 basis point cut in September. Speculation is also rising about another potential cut in December as new unemployment insurance claims have risen, alongside indications of a cooling labor market suggested by the July Non-Agricultural Payroll (NFP) report.
• A recent report shows that the number of new unemployment claims in the US for the week ending August 2nd increased to 226K, surpassing the projected 221K and edging up from 218K the previous week.
• President Trump has proposed increasing drug tariffs up to 250%, including a recent plan for a 100% levy on semiconductor imports. This aggressive move in tariffs has commenced, with rates between 10% and 41%, raising concerns regarding potential repercussions for the US economy.
• Mary Daly, President of the San Francisco Federal Reserve, mentioned that despite some progress, the Fed still has substantial evidence regarding inflationary pressures that may necessitate action without a comprehensive view.
• Boston Fed President Susan Collins and Committee member Lisa Cook have cautioned that ongoing uncertainty remains a significant hurdle to effective policy communication and complicates the central banks’ ability to manage interest rates prudently.
• In the latest discussions in Stockholm, the US and China failed to agree on extending the 90-day tariff suspension, which is due to expire on August 12. The decision now falls to President Trump. Meanwhile, US tariffs were reduced from 145% to 30%, while China’s tariffs decreased from 125% to 10%.
• China’s trade balance hit CNY 70.51 billion in July, up from CNY 58.596 billion previously. Exports rose by 8.0% in July, building on a 7.2% increase in June, while imports saw a year-on-year rise of 4.8%.
• Notably, Australia has not faced the latest increase in US tariffs, which means President Trump has kept the baseline tariff on Australian goods steady at 10%.

The Australian Dollar hovers around 0.6500, near the 9-day EMA

On Friday, the AUD/USD pair is trading at about 0.6510. A technical evaluation reveals bullish market sentiments, with a 14-day Relative Strength Index (RSI) above 50. Furthermore, the pair remains above the nine-day Exponential Moving Average (EMA), pointing to strengthened short-term momentum.

However, the AUD/USD may test critical levels near 0.6600 and the nine-month high of 0.6625 recorded on July 24th.

The pair is nearing the nine-day EMA at 0.6501, along with the 50-day EMA at 0.6498. A further drop beyond these levels could weaken both short- and medium-term price momentum, potentially leading to a revisit of the two-month low of 0.6419 noted on August 1, followed by a three-month low of 0.6372 from June 23.

AUD/USD: Daily Charts

The heatmap illustrates the rate changes for major currencies, with the left column indicating the base currency and the top row the estimated currency.