Australian Dollar pares gains, but downside seems limited due to risk-on mood

• The Australian Dollar declines despite a risk-on sentiment following the dovish Fed Chair Powell.
• The downside of the AUD may be restrained due to the hawkish mood surrounding the RBA.
• The US Dollar loses ground due to rising expectations of a 25 basis points rate cut in September.

The Australian Dollar (AUD) edges lower, still hovering around a seven-month high of 0.6798 on Monday. However, the AUD/USD pair gained ground due to the rising risk-on sentiment following the dovish speech from the US Federal Reserve (Fed) Chairman Jerome Powell at the Jackson Hole Symposium on Friday.

The Aussie Dollar also received support from the hawkish sentiment surrounding the Reserve Bank of Australia (RBA) regarding its policy outlook. the recent RBA Minutes showed that the board members agreed that a rate cut is unlikely soon. Additionally, RBA Governor Michele Bullock expressed that the Australian central bank will not hesitate to raise rates again to combat inflation if needed.

The US Dollar (USD) depreciates due to rising odds of a rate cut in September. According to the CME FedWatch Tool, markets are now fully anticipating at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting.

Fed Chair Jerome Powell stated at the Jackson Hole Symposium "The time has come for policy to adjust." However, Powell did not specify when rate cuts would begin or their potential size.

Daily Digest Market Movers: Australian Dollar edges lower despite the hawkish RBA

• Philadelphia Fed President Patrick Harker stated on Friday that the US central bank's approach to interest rate adjustments needs to be "methodical," signaling that policymakers are planning a series of rate cuts throughout the remainder of 2024 as the US central bank prepares for a dovish shift, according to Bloomberg.
• Chicago President Austan Goolsbee noted on Friday that the Fed has seen broad success in achieving its goals and that inflation should continue to head toward the US central bank's target range. Policy is now at its tightest point of the entire hike cycle. Everything we wanted to happen to get rates down, has happened, per Reuters.
• The US Composite PMI dipped slightly to 54.1 in August, a four-month low, down from 54.3 in July, yet remained above market expectations of 53.5. This suggests that US business activity continues to expand, marking 19 straight months of growth.
• Australia's Judo Bank Composite Purchasing Managers Index (PMI) rose to 51.4 in August, up from 49.9 in July. This increase marks the fastest expansion in three months, driven by a stronger performance in the services sector, despite a more pronounced contraction in manufacturing production.
• FOMC Minutes for July's policy meeting indicated that most Fed officials agreed last month that they would likely cut their benchmark interest rate at the upcoming meeting in September as long as inflation continued to cool.
• On Tuesday, the RBA Minutes suggested that the board members had considered a rate hike earlier this month before ultimately deciding that maintaining current rates would better balance the risks. Additionally, RBA members agreed that a rate cut is unlikely soon.

Technical Analysis: Australian Dollar rises to seven-month highs around 0.6800

The Australian Dollar trades around 0.6790 on Monday. Daily chart analysis shows the AUD/USD pair has returned to the ascending channel, suggesting reinforcing a bullish bias. However, the 14-day Relative Strength Index (RSI) reaches near the 70 mark, supporting the ongoing bullish momentum.

In terms of resistance, the AUD/USD pair tests the seven-month high of 0.6798. A break above this level could lead the pair to explore the region around the upper boundary of the ascending channel at the 0.6910 level.

On the downside, the AUD/USD pair may find support around the lower boundary of the ascending channel at the 0.6770 level, followed by the nine-day Exponential Moving Average (EMA) at the 0.6718 level. A break below the nine-day EMA could weaken the bullish bias and put downward pressure on the pair to navigate the region around the throwback level at 0.6575, followed by another throwback level at 0.6470.

AUD/USD: Daily Chart