As investors modify their interest rate expectations for the Federal Reserve in response to a weak US jobs report last week, the Australian Dollar continues its surge into a third consecutive trading session, rising 0.25% on Monday. Consequently, the US Dollar weakened, driving AUD/USD higher to trade at 0.6950 after bouncing off daily lows of 0.6921. Data in the US indicated that business activity in the services sector experienced a slight deterioration, yet it continued to remain within expansionary territory. The ISM Services PMI for June registered at 54, a decrease from 54.5, yet consistent with expectations. Within the survey’s sub-components, the Prices Index decreased from 71.3 to 67.7, whereas the Employment Index increased from 47.9 to 51.2. The data illustrates a robust US economy; however, the softer-than-anticipated June NFP print from last week elicited a response from investors, leading to a reduction in hawkish expectations.
Despite this, Fed Governor Christopher Waller maintained a hawkish stance, asserting that policymakers remain steadfast in their commitment to a 2% inflation target. He noted that the risks have shifted as the labour market stabilises while inflation begins to rise. Ahead in the week, traders are anticipating the release of the Fed’s last meeting minutes, the inaugural session under the new Fed Chair Kevin Warsh, as they seek insights regarding the trajectory of interest rates. In addition, Initial Jobless Claims for the week ending July 4 are anticipated. In Australia, the minutes from the most recent meeting of the Reserve Bank of Australia suggested that a pause is necessary to evaluate the impact of the earlier rate increases. However, they acknowledged that maintaining rates offered the optimal equilibrium to achieve inflation and employment targets. Despite this, the board remains steadfast in its commitment to achieving price stability, which may involve raising rates if deemed necessary. Consequently, the RBA’s hawkish tilt limited some of the initial losses in the AUD/USD.
This week, the economic calendar appears sparse, with traders focusing on the upcoming release of Westpac Consumer Confidence for July on July 13, succeeded by the update of Consumer Inflation Expectations for the same timeframe. In the daily chart, AUD/USD is currently positioned at 0.6955. The pair maintains a bearish near-term outlook as the spot price remains below the cluster of simple moving averages (50-, 100-, and 200-day SMA) centred around 0.7091 and beneath several previously respected upward trend-line levels. This suggests that former structural supports have now transformed into overhead supply. The Relative Strength Index (14) at approximately 43 indicates a weak position, implying that downside pressure continues, even though the recent decline reflects a slight loss of momentum rather than a pronounced capitulation.
On the topside, initial resistance appears near the broken long-term trend-line area around 0.7002, with a more substantial cap formed by the overlapping former trend-line supports and the SMA cluster between approximately 0.7086 and 0.7111, which would need to be reclaimed to alleviate the current bearish sentiment. Any additional loss would leave AUD/USD susceptible to finding new demand at lower levels, maintaining risks slanted to the negative while it trades beneath the mentioned resistance band because the dataset presented lacks clearly defined structural floors immediately below current prices.