AUD appreciates as robust July inflation figures strengthen expectations for a rate increase by the Reserve Bank of Australia. Markets currently anticipate a rate increase in November, as leading banks project an earlier tightening of monetary policy. Traders are poised for Federal Reserve Chair Kevin Warsh’s upcoming speech at Jackson Hole, seeking directional insights regarding US interest rates. AUD/USD continues its winning streak for the fourth consecutive day, trading around 0.7200 during the Asian hours on Friday. The currency pair is appreciating as the Australian Dollar receives strong support from rising expectations of rate hikes by the Reserve Bank of Australia. This tighter policy outlook is a response to the unexpectedly high inflation report for July.
Several major banks have adjusted their projections for the cash rate. National Australia Bank now anticipates the cash rate will reach 4.6% next month, while Commonwealth Bank of Australia and ANZ foresee a potential adjustment in November, although they recognise the likelihood of earlier tightening. Financial markets have recalibrated, now reflecting an approximate 50% likelihood of a rate increase at the RBA’s September meeting, a significant rise from the previous 17%, while fully anticipating a hike in November. Strategists argue that the broader FX backdrop continues to favour higher-yielding currencies, so long as US policy keeps bond markets in check. They contend that “as for the bigger picture, as long as the US is trying to keep a lid on Treasury yields, and as long as US growth is holding up, there will be better FX longs in EM than in DM, and continued demand for G10’s highest-yielding currency, the AUD.”
Meanwhile, forex traders are redirecting their attention to the annual economic symposium in Jackson Hole, Wyoming. Market participants are closely observing an impending address by Federal Reserve Chairman Kevin Warsh, seeking potential indications concerning the trajectory of US monetary policy and interest rates. In the daily chart, the exchange rate for AUD/USD is positioned at 0.7200. The pair maintains a bullish near-term outlook as the price remains comfortably above both the nine- and 50-day Exponential Moving Averages, ensuring that the short- and medium-term trend profiles are aligned to the upside. The 14-day Relative Strength Index at 70.7 has entered overbought territory, indicating robust yet possibly extended upward momentum following the recent advance.
On the downside, initial support is positioned at the nine-day EMA around 0.7160, followed by the 50-day EMA near 0.7070. A deeper pullback at this level is anticipated to draw dip-buying interest, while the overarching uptrend continues to hold firm. Below these dynamic floors, more distant horizontal supports are positioned at 0.6688, followed by 0.6434 and 0.6348. These levels delineate the lower boundary of the broader bullish structure and are unlikely to be tested unless there is a significant deterioration in sentiment.
