Australian Dollar moves little as traders adopt caution ahead of upcoming RBA decision

• The Australian Dollar may face challenges as the RBA may deliver a 25 basis point rate cut on Tuesday.
• China's Consumer Price Index came at 0% YoY in July, against the market consensus of -0.1%.
• The softening in US economic data has led traders to factor in the possibility of two rate cuts this year.

The Australian Dollar (AUD) remains steady against the US Dollar (USD) on Monday due to market caution ahead of the interest rate decision by the Reserve Bank of Australia due on Tuesday. The AUD/USD pair may face challenges as traders are pricing in that the RBA will deliver a 25 basis point (bps) rate cut, bringing its Official Cash Rate (OCR) to 3.6% from 3.85% at its August meeting.

The RBA is widely anticipated to reduce interest rates as core inflation eased to 2.7% in June, well within the RBA's 2-3% target, along with rising unemployment and slowing wage growth. However, the Australian central bank adopted a cautious stance in July, pointing to a more balanced view of inflation risks and ongoing labor market strength.

Uncertainty surrounding the RBA decision persists, however, after Governor Michele Bullock stated following the July decision that the central bank would no longer offer forward guidance, stressing that decisions lie solely with the board and cannot be predicted before meetings.

The AUD could also face challenges due to persisting deflation in China, Australia's close trading partner. The National Bureau of Statistics of China reported on Saturday that China's Consumer Price Index (CPI) year-over-year was unchanged in July following a 0.1% increase in June. The figure came in above the market consensus of -0.1%. Meanwhile, the Producer Price Index (PPI) declined 3.6% YoY, against the expected decline of 3.3% and the previous 3.6% decline.

Australian Dollar steadies as US Dollar weakens ahead of upcoming CPI data

• The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is retracing its recent gains and trading around 98.10 at the time of writing. The Greenback struggles following the soft US economic data, which prompted traders to price in the possibility of more interest rate cuts this year. Traders will likely await the upcoming US consumer inflation figures due to be published on Tuesday.
• Markets are now pricing in approximately 89% odds of a Fed rate cut at the September meeting, up from 80% a week ago, according to the CME FedWatch tool.
• Fed Governor Michelle Bowman stated on Saturday that three interest rate cuts are likely to be appropriate this year. Bowman added that the apparent weakening in the labor market outweighs the risks of higher inflation to come.
• US President Donald Trump has nominated Stephen Miran, chair of the Council of Economic Advisors, to succeed Adriana Kugler on the Federal Reserve Board of Governors. Traders will also keep their eyes on Trump's plans to replace Fed Chair Powell. Fed Governor Christopher Waller is emerging as a top candidate to serve as the central bank's chair among Trump's advisers, per Bloomberg.
• Federal Reserve Bank of San Francisco President Mary Daly said last week that the Fed still has some ground to cover on its fight with inflation pressures despite overall progress. Daly highlighted that the Fed may be forced to act soon without having the full picture.
• Boston Fed President Susan Collins and Fed Board of Governors member Lisa Cook cautioned that persistent uncertainty remains a major obstacle to effective policy transmission and challenges the central bank's ability to manage interest rates efficiently.
• According to Reuters, President Trump warned China that he could impose further tariffs similar to the 25% levies announced earlier on India over its Russian Oil purchases, depending on future developments.

Australian Dollar hovers above nine-day EMA, near 0.6500

The AUD/USD pair is trading around 0.6520 on Monday. Technical analysis on the daily chart suggests a bullish market sentiment as the pair moves upwards within an ascending channel pattern. Additionally, the 14-day Relative Strength Index (RSI) is positioned above the 50 level, strengthening the bullish bias. The pair also remains above the nine-day Exponential Moving Average (EMA), signaling that short-term momentum is stronger.

On the upside, the AUD/USD pair could target the upper boundary of the ascending channel around 0.6560. A successful breach above this level could strengthen the bullish bias and support the pair to explore the area around the psychological level of 0.6600, followed by the nine-month high at 0.6625, which was recorded on July 24.

The AUD/USD pair may find its immediate support at the nine-day EMA at 0.6506, aligned with the 50-day EMA at 0.6496. A break below these levels would weaken the short- and medium-term price momentum and put downward pressure on the pair to test the two-month low of 0.6419, which was recorded on August 1, followed by a three-month low at 0.6372, recorded on June 23.

AUD/USD: Daily Chart