The Australian Dollar (AUD) edged lower against the US Dollar (USD) on Wednesday after two consecutive days of gains, with AUD/USD trading near 0.6670. While the pullback reflects a modest USD rebound ahead of the Federal Reserve’s policy decision, downside pressure on the pair appears contained as fading expectations of Reserve Bank of Australia (RBA) rate cuts continue to lend support.
Stronger-than-expected US Retail Sales data offered some relief to the USD. August sales rose 0.6% month-over-month, outpacing forecasts of 0.2% and extending July’s upwardly revised 0.6% gain. Both the Retail Sales Control Group and sales ex-autos also advanced 0.7%, signaling resilient household spending despite elevated inflation and labor market weakness.
Fed outlook in focus as USD steadies
The US Dollar Index (DXY) has edged higher to around 96.70 after a sharp decline, supported by positioning ahead of the Fed’s policy decision. Markets are fully pricing in a 25 basis point rate cut, with a slim chance of a deeper 50 bps move. Investors will closely monitor the Fed’s updated Summary of Economic Projections and dot plot, alongside comments from Chair Jerome Powell, for clarity on the rate-cut path.
Expectations for multiple Fed cuts have firmed after recent data showed US jobless claims at their highest since 2021 and a weak Nonfarm Payrolls report, overshadowing hotter consumer inflation. Morgan Stanley and Deutsche Bank now forecast three rate reductions this year, with 25 bps moves in September, October, and December.
Meanwhile, Stephen Miran’s narrow confirmation to the Fed Board adds a new voice to the central bank’s policy discussions. His appointment, the first by a former executive-branch official since 1935, highlights the shifting dynamics within the Fed.
China data mixed as traders weigh global demand
China’s latest economic figures showed retail sales rising 3.4% year-over-year in August, slightly below expectations of 3.8% and down from July’s 3.7%. Industrial production increased 5.2%, missing forecasts of 5.8%. The National Bureau of Statistics described the economy as “generally steady” but cautioned about external headwinds and operational pressures facing domestic firms.
The United States and China also advanced trade discussions this week, with a deal to shift TikTok’s ownership under US control awaiting approval during an upcoming call between Presidents Biden and Xi Jinping.
RBA outlook supports AUD
At home, RBA Assistant Governor Sarah Hunter noted that inflation is “close to target,” with risks to the outlook balanced. She highlighted the delayed impact of monetary policy and the importance of monitoring consumer demand to maintain full employment.
Money markets have scaled back bets on further rate cuts, with swaps now pricing in an 86% probability of no change in September. Australia’s strong Q2 GDP, robust July trade surplus, and hotter July inflation, alongside higher consumer inflation expectations in September, have strengthened the case for policy stability.
Technical outlook: AUD/USD consolidates near 11-month highs
From a technical perspective, AUD/USD remains within an ascending channel, reinforcing the bullish bias. The pair is holding above the nine-day Exponential Moving Average (EMA) at 0.6634, suggesting resilient short-term momentum.
Upside targets include the recent 11-month high of 0.6689, the psychological 0.6700 level, and channel resistance near 0.6710. On the downside, initial support lies at the nine-day EMA, followed by the channel’s lower boundary around 0.6570. A decisive break below could shift momentum and expose the 50-day EMA at 0.6541.
