Australian Dollar steadies as US extends China tariff deadline, RBA decision eyed

• The Australian Dollar holds ground ahead of the RBA policy decision due on Tuesday.
• The Trump administration has postponed the implementation of tariffs on China for an additional 90 days.
• The US Consumer Price Index is estimated to show an increase of 2.8% YoY in July.

The Australian Dollar (AUD) maintains its position against the US Dollar (USD) on Tuesday ahead of the interest rate decision by the Reserve Bank of Australia. The AUD/USD pair may appreciate as US President Donald Trump has extended the China tariff deadline by another 90 days.

The Reserve Bank of Australia is widely expected to announce a 25 basis points (bps) rate cut to the Official Cash Rate (OCR) to 3.6% from 3.85% at its August monetary policy meeting later in the day. Traders will likely observe the Monetary Policy Statement, followed by the RBA Governor, Michele Bullock's press conference.

The Trump administration agreed to postpone the implementation of sweeping tariffs on China, Australia's close trading partner, for an additional 90 days, just hours before the previous agreement between the world's two largest economies was set to expire. In response, China's Commerce Ministry announced it would suspend additional tariffs on US goods for the same period, following Trump's executive order extending the tariff truce.

Australian Dollar steadies as US Dollar holds ground ahead of CPI inflation

• The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is holding ground after two days of gains and trading around 98.50 at the time of writing. Traders will likely await the upcoming US consumer inflation figures later in the North American session.
• Markets are now pricing in approximately 84% odds of a Fed rate cut at the September meeting, down from 90% 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.
• 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.
• 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 tests confluence support zone around 0.6500

AUD/USD is trading around 0.6510 on Tuesday. Technical analysis on the daily chart suggests a weakening of bullish bias as the pair tests to break below the ascending channel's lower boundary. The 14-day Relative Strength Index (RSI) is positioned at the 50 level, suggesting a neutral market bias. Further movement will indicate a clear directional trend. However, the pair is still remaining above the nine-day Exponential Moving Average (EMA), signaling that short-term momentum is still stronger.

On the upside, the AUD/USD pair could explore the area around the upper boundary of the ascending channel around 0.6570. 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 is testing its immediate support at the nine-day EMA of 0.6506, aligned with the ascending channel's lower boundary and 50-day EMA at 0.6498. A break below this crucial support zone 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