- The Australian dollar faces challenges despite better-than-expected trade balance figures.
- In July, Australia’s trade balance grew to 7,310 million, exceeding the forecast of 4,920 million.
- The US dollar shows a slight increase before upcoming labor data and the ISM Services PMI release on Thursday.
Despite the publication of positive trade balance data, the Australian dollar (AUD) looks set to decline. Yet, the AUD/USD pair held steady as the US dollar (USD) also faced difficulties. Traders are likely keeping an eye on initial unemployment claims due later in the North American session, along with updates from ADP employment and the ISM Services Purchasing Managers Index (PMI).
Australia’s trade balance showed a significant increase, up 730 million from the previous month’s adjusted figure of 5,366 million. The trade surplus hit 4,920 million, while exports rose by 3.3% in July, up from a previously adjusted 6.3%. On the other hand, imports dipped by 1.3% month-over-month, a slight change from the revised 1.5% fall noted in June.
The US Dollar Index (DXY), which evaluates the US dollar’s value against six major currencies, is maintaining its position, trading around 98.20 as of this writing. Recent job data indicated a drop in openings from 7.35 million to 7.18 million in July, marking the lowest point since September 2024, falling short of the expected 7.4 million.
According to the CME FedWatch tool, there’s a greater than 97% likelihood of maintaining the baseline interest rate after the September policy meeting, while expectations for additional cuts by the Reserve Bank of Australia (RBA) appear to ease. Currently, there’s an estimated 90% chance the RBA will keep its policies unchanged. Economists anticipate that around 75,000 jobs will be added in the US non-farm payroll for August, with the unemployment rate standing at 4.3%.
Australian Dollar Challenges Despite Lowered RBA Rate Cut Expectations
- The Australian Bureau of Statistics announced a quarterly rise of 0.6% in the second quarter, outpacing expectations for a 0.5% expansion. This follows a 0.3% growth in Q1. Additionally, the second quarter’s GDP rose by 1.8%, beating a forecast of 1.6% growth that was expected after a 1.4% increase in the first quarter.
- Strong GDP figures have reduced the likelihood of further RBA rate cuts, prompting market investors to lean toward a stable policy stance for the time being.
- July’s monthly consumer price index indicates a year-on-year increase of 2.8%, surpassing both last month’s 1.9% rise and the 2.3% forecast. This higher inflation signals a diminished chance for imminent RBA rate cuts.
- China’s Caixin Services PMI unexpectedly increased to 53.0 in August from July’s 52.6, beating predictions of 52.5. Additionally, the Caixin Manufacturing PMI moved from 49.5 to 50.5. It’s important to note that trends in the Chinese economy can directly influence the AUD due to close trading ties.
- Minneapolis Fed President Neil Kashkari reiterated concerns about increased tariffs raising consumer goods costs and inflation. Meanwhile, Atlanta Fed President Raphael Bostic emphasized that persistent inflation posed significant risks, but signs of a weakening labor market might influence future Fed decisions.
AUD/USD Trends Towards 9-Day EMA Support Below 0.6550
Currently, the AUD/USD pair is trading at around 0.6530. Daily chart analyses present a generally bullish sentiment as the pair advances within an upward channel pattern. Moreover, it’s situated above the 9-day exponential moving average (EMA), suggesting strong short-term momentum.
On the other hand, the AUD/USD pair has its sights set on a five-week high of 0.6568 reached on August 14 and could approach the channel’s upper limit around 0.6590. If it breaches this channel, it may support a bullish sentiment, potentially reaching a nine-month peak of 0.6625 established on July 24.
Primary support is located at the 9-day EMA of 0.6524, with additional support levels at around 0.6510 (lower channel limit) and 0.6501 (50-day EMA). Dropping below this key support area could prompt a bearish trend, pushing the AUD/USD pair toward a three-month low of 0.6414 noted on August 21.
