Australian Dollar declines as USD strengthens

• USD recovered after signs of sticky inflation on July's PCE.
• Recovery momentum in AUD throughout August has been supported mainly by the weak USD and improved conditions of risk-related assets.
• RBA's hawkish stance continues to benefit the Aussie.

The AUD/USD declined by 0.70% to 0.6750 in Friday's session as the USD strengthened in response to July's Personal Consumption Expenditures (PCE) figures. Despite this, the Reserve Bank of Australia's (RBA) hawkish stance may limit further declines in the AUD.

Despite a complex economic outlook for Australia, the RBA has taken a rigid stance in response to persistent inflation. As a result, financial markets now anticipate a modest 25-basis-point reduction in interest rates by 2024.

Daily digest market movers: Australian Dollar takes a breather, fundamentals still favor further upside

• RBA maintains OCR at 4.35%, signaling a cautious approach and ongoing inflation concerns.
• Governor Bullock emphasizes RBA's readiness to hike rates further if necessary.
• Copper and iron ore price gains also contributed to AUD upside momentum.
• US PCE inflation data showed core inflation rising 2.6%, slower than estimated and indicating a sticky underlying inflation.
• Divergence between Federal Reserve (Fed) and RBA might limit the pair's downside.

AUD/USD technical outlook: Bearish momentum appears, pair loses 0.6800

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

However, it all points to buyers taking a breather after August's furious rally, which saw indicators near overbought terrain.

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