Australian dollar bounces as sellers take a break, dovish RBA bets could limit gains

Australians can breathe a sigh of relief after mixed PPI data was released.
Traders remain vigilant amid disappointment with US employment data.
Markets are adjusting their stance on Reserve Bank of Australia monetary policy and are now expecting a cut in 2024.

The Australian dollar is showing little improvement against the US dollar (USD), which is experiencing a acute decline following disappointing US employment data. That said, economic weakness in Australia and rising expectations of interest rate cuts by the Reserve Bank of Australia (RBA) are providing restricted upside for the Australian dollar.

Despite high inflation, weakness in Australian economic activity has seen markets shift their expectations from a rate hike to a rate cut by the RBA by the end of the year. Forecasts now suggest the RBA will implement a rate cut to cope with the economic sluggishness, which could potentially limit further escalation for the Australian dollar.

Daily Market Moves Review: Aussies rally despite increased RBA cut chances

Australia’s Producer Price Index (PPI) for Q2, released this week, showed a year-on-year escalate of 4.8%, a significant escalate from 4.3% in Q1.
The continued acceleration, reaching its highest level since the first quarter of 2023, has the RBA under the microscope to take appropriate action.
With the market estimating an 80% probability of an RBA rate cut by the end of the year, the upside potential for the Australian currency is restricted.
Across the Pacific, the number of nonfarm payroll jobs in the US rose by 114,000, significantly less than expected (175,000).
The unemployment rate rose to 4.3% from 4.1% in June, while the labour force participation rate rose slightly to 62.7% from the previous 62.6%.
The average hourly earnings report showed a decline from 3.8% to 3.6% year-over-year, which negatively impacted the currency market, increasing the weight of the US dollar.
In delicate of this data, the Federal Reserve (Fed) is expected to start cutting interest rates in September, with a probability of 90% according to the CME FedWatch Tool.

AUD/USD Technical Analysis: Downtrends Questioned, Still Room for Potential Corrections

AUD/USD trading below the 20-, 100- and 200-day uncomplicated moving averages (SMA) extends the mostly bearish sentiment. The daily Relative Strength Index (RSI) has been recording values between 30 and 37 over the past week, reinforcing the bearish outlook. The Moving Average Convergence Divergence (MACD) indicator maintains flat red bars, signaling sustained bearish momentum.

However, the AUD/USD pair seems to be showing resistance near the 0.6480 level, which indicates a potential key support level. On the other hand, resistance is speculated around the 0.6560-0.6570 zone, where selling pressure has capped the rally so far.