Australian Dollar remains tepid ahead of Fed Powell's speech

The Australian Dollar (AUD) edges lower on Monday, trading around its six-month high of 0.6798 recorded on Thursday. In China, a close trade partner of Australia, Gross Domestic Product (GDP) grew 4.7% year-over-year in the second quarter, compared to a 5.3% expansion in the first quarter and an expected 5.1%. Weaker-than-expected China GDP data could exert mild pressure on the Aussie Dollar, undermining the AUD/USD pair.

The Australian Dollar may continue to rise as speculation grows that the Reserve Bank of Australia (RBA) might delay joining the global rate-cutting cycle or even raise interest rates again. Persistently high inflation in Australia prompts the RBA to maintain a hawkish stance.

The US Dollar (USD) strengthens due to increased risk aversion following an attempted assassination of former US President Donald Trump on Saturday. Analysts suggest that if this incident boosts Trump's election prospects, it could lead to so-called 'Trump-victory trades,' potentially resulting in a stronger US Dollar and a steeper US Treasury yield curve, per Reuters.

The AUD/USD pair may find support as the US Dollar (USD) could lose ground due to rising expectations of a potential Federal Reserve (Fed) rate cut in September. This anticipation is driven by the softer-than-expected US Consumer Price Index (CPI) data in June.

Daily Digest Market Movers: Australian Dollar declines due to risk aversion

• The National Bureau of Statistics (NBS) reported that China's economy operated generally steadily in the first half of the year, with H1 GDP growth at +5.0% year-on-year. Looking ahead, the NBS highlighted increasing external uncertainties and numerous domestic challenges that China's economy faces in the second half of the year.
• US President Joe Biden on Monday addressed the nation from the White House, where he condemned all political violence and called for unity, per CNBC. Biden further stated that “it’s time to cool it down” and noted not just the weekend attack on Trump but also the possibility of election-year violence on multiple fronts.
• China's Retail Sales (YoY) increased by 2.0% in June, falling short of the expected 3.3% and below May's 3.7%. Meanwhile, the country's Industrial Production for the same period showed a growth rate of 5.3% year-over-year, surpassing estimates of 5.0%, albeit slightly lower than May's 5.6%.
• The US Core Producer Price Index (PPI) rose 3.0% year-over-year in June, exceeding the expected 2.5% and the previous reading of 2.6%. Moreover, the preliminary Michigan Consumer Sentiment Index fell short of expectations in July, registering at 66.0 compared to the forecasted 68.5 and the previous 68.2.
• On Friday, China’s Trade Balance data for June, showed a trade surplus of $99.05 billion, widening from the previous figure of $82.62 billion. China Exports (YoY) rose 8.6% vs. 8.0% expected and prior 7.6% reading. Meanwhile, Imports (YoY) declined by 2.3% compared to the previous rise of 2.8%.
• Federal Reserve Bank of Chicago President Austan Goolsbee said on Thursday that the US economy appears to be on track to achieve 2% inflation. This suggests Goolsbee is gaining confidence that the time for cutting interest rates may soon be approaching. He also stated "My view is, this is what the path to 2% looks like," according to Reuters.
• On Thursday, the data showed that the US Core Consumer Price Index (CPI), which excludes volatile food and energy prices, rose by 3.3% year-over-year in June, compared to May's increase of 3.4% and the same expectation. Meanwhile, the core CPI increased by 0.1% month-over-month, against the expected and prior reading of 0.2%.
• Federal Reserve Chairman Jerome Powell highlighted the urgent need to monitor the deteriorating labor market on Wednesday. Additionally, Powell expressed confidence in the downward trend of inflation, following his earlier remarks that emphasized the necessity of further data to strengthen confidence in the inflation outlook.

Technical Analysis: Australian Dollar holds position above 0.6750

The Australian Dollar trades around 0.6760 on Monday. The analysis of the daily chart shows that the AUD/USD pair consolidates within an ascending channel, indicating a bullish bias. Additionally, the 14-day Relative Strength Index (RSI) has retreated from the 70 level, suggesting a correction. However, it remains above 50, suggesting continued bullish momentum. A further decline could weaken this trend.

The AUD/USD pair may retest the upper boundary of the ascending channel near the psychological level of 0.6800.

On the downside, immediate support appears around the nine-day Exponential Moving Average (EMA) at 0.6643. Further support is seen near the lower boundary of the ascending channel at 0.6690. A break below this level could push the AUD/USD pair toward the throwback support at 0.6590.

AUD/USD: Daily Chart