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Fed policy bets boost Australian dollar, U.S. economic data weak
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Hello everyone, today XM Forex will bring you "[XM Forex Market Review]: Federal Reserve policy betting boosts the Australian dollar, and US economic data is weak." Hope it will be helpful to you! The original content is as follows:
On Monday (August 4), the Australian dollar/USD showed an upward recovery trend in the short term, but the overall amplitude is not large, and it is at a relatively narrow range of fluctuations and attempts to explore the upward pace.
As the weak US economic data, the market's bet on the Fed's interest rate cuts are rekindled, and the Australian dollar/dollar is expected to rebound. However, this week's RBA policy expectations and U.S. key service industry data will determine the direction of the pair. Despite a 1.37% decline last week, the AUD/USD still leads the rise to 4.57% so far this year.
After the weak performance of non-farm employment data (NFP) and Purchasing Managers Index (PMI) released on the previous five, the money market is currently hinting that the Fed will cut interest rates by 25 basis points in September. Although the minutes of the Federal Open Market eouu.cnmittee meeting released earlier this week poured cold water on the September rate cut, these weak data cannot be ignored.
In July, the United States only added 73,000 new jobs, far lower than the expected 106,000. But perhaps even more worrying is the sharp downward revision of June data, falling from 147,000 to only 14,000. While the unemployment rate remains at a relatively low of 4.2% and remains flat, the June data is approaching a contraction signal. The latest PMI data shows that the U.S. manufacturing industry shrank for the fifth consecutive month in June, with the employment index falling to 43.4, the lowest level in a year, and new orders also shrank for the sixth consecutive month.
Chicago eouu.cnmodity Exchange Group's Fed Watch Tool chart shows that traders expect the Fed to cut three consecutive rates by December 2025, with the probability of a target range of 375–400 basis points falling from 89.1% in September to 52.8% in December.
This week's ISM service industry report will be closely watched as any further signs of weakness will only strengthen market expectations of the Fed's action. Although the market rekinds expectations for the RBA's interest rate cut next week, this could still be a bullish signal for AUD/USD traders.
Quarterly inflation data may pave the way for the RBA to cut interest rates by 25 basis points, but the RBA may not be too dovish, but will continue to emphasize cautious attitudes towards the outlook. Meanwhile, the dollar may have more room for a decline eouu.cnpared to the Australian dollar as the money market is trying to digest the expectation of three consecutive interest rate cuts in December, which puts the Australian dollar/USD back into the view of bullish breakthroughs.
Technical Analysis
The weekly and daily charts of the Australian dollar/USD show conflicting signals. The weekly chart shows that the Australian dollar may eventually peak, while the daily chart sends bullish signals in the short term.
Last Wednesday and Thursday, the relative strength index (RSI(2)) on the daily chart was extremely oversold, and then rebounded on Friday, forming a bullish engulfing K-line chart, which is part of the bullish reversal pattern (Morning Star pattern), which happens to appear above the high volume node (HVN) of 0.6414. Currently, the AUD/USD appears to be moving towards the 0.6500 level, with the possibility of breaking through its 50-day exponential moving average (0.6509) and 20-day exponential moving average (0.6523).
Its ability to hit 0.6600 may depend on whether the U.S. ISM service industry report shows further weaker U.S. economy — especially if the payment price drops at a rate that is enough to reduce inflation expectations. However, if the report's data performs strongly, the upside potential of the AUD/USD may be limited, and the USD may regain some bullish momentum.
The weekly and daily charts of the Australian dollar/USD show that a bearish engulfing K-line chart below 0.6600 appeared on the weekly chart, and a morning star reversal pattern appeared near the 0.6414 support level. Last Thursday, RSI(2) was in a very oversold state, indicating a possible rebound in the short term, and its direction may depend on the upcoming US ISM service industry PMI report.
Australia/USD correlation
Most market volatility can be traced back to expectations of the Federal Reserve's monetary policy, which means that the US dollar tends to fluctuate with rising and falling US Treasury yields, and there is a strong negative correlation between the Australian dollar/USD and both. The 20-day rolling correlation between the US dollar index and AUD/USD has risen to a high of 0.96, indicating that there is almost perfect negative correlation between the two.
Although the correlation between the Australian dollar/USD and the New York dollar and the RMB is stronger, reaching 0.98 and 0.97 respectively, these correlations can also be traced to the US dollar, yields, and expectations of Fed policy to a large extent.
The above content is about "[XM Foreign Exchange Market Review]: Federal Reserve GovernmentThe entire content of "betting to boost the Australian dollar and the US economic data is weak" was carefully eouu.cnpiled and edited by the editor of XM Forex. I hope it will be helpful to your transaction! Thank you for your support!
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