Friday Overview
On Friday, the AUD/USD slipped by 0.02%, ending the week down 1.41% to 0.64017. A bullish start to the session saw the Australian dollar rise to an early high of $0.64289 before falling to a midday low of $0.63790.
China and the PBoC Are in the Spotlight Today
It is a quiet start to the week. There are no economic indicators from Australia or China to influence investor sentiment.
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However, the PBoC will be in the spotlight this morning. The PBoC will set the one-year and five-year loan prime rates (LPR) as investors look toward Beijing for more stimulus.
Economists expect the PBoC to cut the one-year and five-year loan prime rates by 15 basis points to 3.4% and 4.05%, respectively. The Aussie dollar may need larger-than-expected cuts in the LPRs and the talk of more stimulus to kickstart the week on a bullish footing.
Last week, employment figures from Australia raised bets on an RBA hold on interest rates in September. Weaker labor market conditions and an elevated interest rate environment should curb spending and ease consumer-demand-driven inflationary pressures.
China’s economic woes and contagion fear will likely be another consideration for the RBA.
A Light US Economic Calendar Leaves the Fed in Focus
It is a quiet start to the week on the US economic calendar. There are no US economic indicators to impact sentiment toward Fed monetary policy.
However, investors should consider FOMC member chatter ahead of the Jackson Hole Symposium on Thursday and Friday. On Wednesday, the FOMC meeting minutes revealed FOMC members are open to further rate hikes. Fed Chair Powell could greenlight a September rate hike on Friday.
We expect hawkish Fed chatter to drive bets on a September rate hike and a higher-for-longer interest rate environment to tackle the tight US labor market and sticky inflation.
At present, monetary policy divergence remains firmly in favor of the dollar. Interest rate differentials and sentiment toward RBA and Fed monetary policy outlooks tip the scales, leaving the dollar vulnerable to dovish Fed commentary.
AUD/USD Price Action
Daily Chart
The Daily Chart showed the AUD/USD sat below the $0.6430 – $0.6450 resistance band. Significantly, a nine-day losing streak left the Aussie below the 50-day and 200-day EMAs, sending bearish near and longer-term price signals.
Looking at the 14-Daily RSI, 29.31 shows the AUD/USD in oversold territory. The RSI aligns with the 50-day EMA, signaling a fall to sub-$0.64 to give the bears a run at the $0.6340 – $0.6320 support band. However, avoiding sub-$0.64 would bring the $0.6430 – $0.6450 resistance band into play.
4-Hourly Chart
Looking at the 4-Hourly Chart, the AUD/USD hovers below the $0.6430 – $0.6450 resistance band. The extended pullback from the $0.68 handle leaves the AUD/USD below the 50-day and 200-day EMAs, affirming bearish near and longer-term price signals.
Looking at the 14-4-Houly RSI, 43.16 reflects a bearish sentiment, with selling pressure overweighing buying pressure. The RSI is aligned with the EMAs supporting a fall to sub-$0.64 to give the bears a run at the $0.6340 – $0.6320 support band. However, a move through the $0.6430 – $0.6450 resistance band would bring the 50-day EMA into play.
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