Australian dollar takes a breather, delicate USD and hawkish RBA limit downside

The AUD/USD pair fell slightly, reaching 0.67466 on Wednesday.
The RBA’s persistently aggressive stance makes the Australian dollar the favourite over its rivals.
Dovish Fed bets weaken US dollar.

AUD/USD is trading slightly lower on Wednesday as traders digest a nearly 2% gain in recent sessions. Talk of a policy divergence between the Federal Reserve (Fed) considering a less aggressive approach to interest rates and the Reserve Bank of Australia (RBA) remaining steadfast remains the driving force behind the pair, putting the Aussie ahead of the Greenback.

Despite Australia’s mixed economic outlook and the RBA’s hawkish stance on the back of high inflation, markets are only forecasting 25 basis points of monetary policy easing in 2024, which maintains some support for the Australian dollar.

Daily Market Factors Review: Australian dollar gains stalled, Fed’s softer stance paves way for gains

Weakening US jobs data suggests the Federal Reserve may take a less aggressive stance, which could lead to a weakening of the US dollar.
Moreover, the minutes of the Federal Open Market Committee (FOMC) meeting in July showed that most participants were open to an interest rate cut in September, adding to the argument that the Federal Reserve will adopt a dovish stance at its next meeting.
On the other hand, the RBA has made it clear that it is not considering cutting interest rates for now, and this divergence is pushing the pair higher.
However, data coming from both countries will continue to determine the pair’s trajectory.
Markets see a high probability of the Fed cutting interest rates by 100 basis points by the end of the year, while investors see a low probability of the RBA cutting interest rates by 25 basis points.

AUD/USD Technical Outlook: AUD/USD continues to trend upwards, but with weaker momentum

Technical analysis suggests that the AUD/USD pair has maintained its upward trajectory over the past few sessions. The Relative Strength Index (RSI), which indicates market momentum, has risen near the 70 benchmark. This indicates overbought conditions in recent sessions.

Additionally, the Moving Average Convergence and Divergence (MACD) indicator confirms this bullish tone as evidenced by the rising green bars, indicating the prevailing bullish sentiment.

Looking ahead, the pair is likely to encounter resistance near the 0.6750 level. In case of any significant breakout of this level, traders should closely monitor volume and RSI. Support is seen in the 0.6700-0.6650 zone.