Australian Dollar declines despite USD weakness

• AUD/USD declines despite USD weakness as expectations for US rate cuts rise sharply.
• Fed whisperer's comments suggest a close call on Fed's decision next week, raising the odds of a 50 bps cut to nearly 50%.
• RBA Governor Bullock remains hawkish, saying it is too soon to consider rate cuts due to high inflation.

The AUD/USD declined by 0.20% to 0.6710 in Friday's session. The Australian Dollar declined, while the US Dollar weakened following comments from a "Fed whisperer" suggesting a higher probability of a 50-basis-point rate cut at the Federal Reserve's (Fed) next meeting. In contrast, the Reserve Bank of Australia (RBA) remains hawkish, which lends support to the Aussie.

The Australian economic outlook is uncertain, with the Reserve Bank of Australia (RBA) maintaining a cautious approach due to elevated inflation. As a result, financial markets anticipate only a modest interest rate cut of 0.25% in 2024, reflecting a shift away from previous expectations of more significant easing. This cautious stance indicates the RBA's concern about inflation and its commitment to controlling price pressures while balancing the need for economic growth.

Daily digest market movers: Australian Dollar declines, downside limited by dovish Fed

• US Treasury Yields declined sharply across the Treasury curve following a report from the Wall Street Journal that suggested a 50bps cut at the FOMC meeting next week is possible.
• The CME FedWatch Tool shows that markets are fully pricing in a 25 bps rate cut at the meeting next week, with a 41% chance of a 50 bps cut.
• Nick Timiraos, a Wall Street Journal reporter known for having close ties to the Fed, suggested that the decision next week could be a close call.
• On the other hand, RBA Governor Michele Bullock has maintained a hawkish outlook, saying last week that it is too soon to consider rate cuts as inflation remains too high.

AUD/USD technical outlook: Pair shows mixed momentum facing resistance at the 20-day SMA

The pair declined by 0.20% in Friday's session, snapping a 2-day winning streak. The Relative Strength Index (RSI) is suggesting that buying pressure is declining, as it has dropped to 51 while the Moving Average Convergence Divergence (MACD) histogram is flat and red, suggesting that selling pressure is steady. The overall outlook is mixed, with the pair likely to continue trading sideways in the near term.Support levels can be identified at 0.6650, 0.6600 and 0.6550, while round resistance levels can be found at 0.6735 (20-day SMA), 0.6750 and 0.6800.