• The US dollar rebounded after signs of high inflation appeared in the PCE index in July.
• The AUD market recovery momentum in August was mainly supported by a faint US dollar and improving risk asset conditions.
• The RBA’s hawkish stance continues to benefit the Australian dollar.

AUD/USD fell 0.70% to 0.6750 in Friday’s session as the USD strengthened in response to July’s Personal Consumption Expenditures (PCE) data. However, the Reserve Bank of Australia’s (RBA) hawkish stance may limit further declines in the AUD.

Despite Australia’s convoluted economic outlook, the RBA has adopted a firm stance in response to persistent inflation. As a result, financial markets are now forecasting a modest 25 basis point rate cut by 2024.

Daily Market Factors Review: Australian Dollar Takes a Break, But Fundamentals Still Support Further Gains

• The RBA maintains the OCR at 4.35%, indicating a cautious approach and ongoing concerns about inflation.
• Governor Bullock stressed that the RBA stands ready to raise interest rates further if necessary.
• Rising copper and iron ore prices also contributed to the AUD’s rise.
• US PCE inflation data showed core inflation rising 2.6%, which is slower than estimated and points to firm core inflation.
• The divergence between the Federal Reserve (Fed) and the RBA could limit the pair’s decline.

AUD/USD Technical Outlook: Bearish Momentum Emerges, Pair Loses 0.6800

The Relative Strength Index (RSI) is currently at 58, pointing down, indicating increasing selling pressure. The Moving Average Convergence Divergence (MACD) indicator is showing flat green bars, suggesting that the bullish momentum is running out.

However, all signs point to buyers taking a break after the piercing price escalate in August, when indicators were near the overbought zone.

Key support levels are 0.6750 and 0.6730, while resistance levels are 0.6800 (previous support) and 0.6830.