Australian Dollar Retreats from Multi-Month Highs as US Dollar Regains Strength

• AUD/USD slips below 0.6600 after reaching an eight-month peak of 0.6625.
• Traders eye upcoming US-China trade talks and US manufacturing data.
• RBA Governor Bullock reiterates focus on inflation control amid global uncertainty.

The Australian Dollar (AUD) lost ground against the US Dollar (USD) on Friday, extending its decline for a second consecutive day. After briefly touching an eight-month high of 0.6625 on Thursday, the AUD/USD pair pulled back to trade around 0.6590 as the greenback found renewed strength.

Market Focus Shifts to US-China Talks and Fed Leadership Clues

Investors are closely watching US trade negotiations, especially the upcoming high-level talks between American and Chinese officials in Stockholm next week. US Treasury Secretary Scott Bessent confirmed the meeting earlier this week as part of broader efforts to de-escalate trade tensions.

Meanwhile, Bessent also indicated that a nominee for the next Federal Reserve Chair will likely be announced in December or January. The uncertainty surrounding the Fed’s future leadership and interest rate outlook continues to influence USD sentiment.

RBA Remains Cautious Despite Strong PMI Readings

On the domestic front, RBA Governor Michele Bullock reiterated her commitment to maintaining low and stable inflation during her speech at the Anika Foundation in Sydney. She also acknowledged rising global uncertainties, which could influence the central bank’s policy decisions.

Despite the cautious tone, recent economic indicators point to underlying strength in Australia’s economy. According to Judo Bank and S&P Global, the Composite PMI rose to 53.6 in July — the highest since April 2022. Services PMI jumped to 53.8, and Manufacturing PMI climbed to 51.6, both suggesting robust business activity and demand.

However, RBA minutes indicated that while further rate cuts are on the table, most board members favor a wait-and-see approach, preferring more concrete signs of an inflation slowdown before acting.

US Dollar Strengthens Ahead of Durable Goods Data

The US Dollar Index (DXY) climbed to 97.60 on Friday, supported by firm US economic data and hawkish Fed commentary. Durable Goods Orders data due later in the day could further drive USD momentum.

Several Fed officials offered differing views on interest rate policy:

• Governor Kugler urged patience before cutting rates, citing tariff-driven inflation.
• Mary Daly sees two rate cuts in 2025 as a “reasonable” forecast.
• Christopher Waller called for a rate cut in July due to rising economic risks.

Trade optimism also continues to support the greenback. President Trump confirmed a new trade agreement with Japan and ongoing negotiations with the EU and the Philippines, reinforcing the market’s risk-on tone.

Technical Outlook: AUD/USD Eyes Key Support at 0.6561

The AUD/USD pair is now trading just below 0.6600. Technical indicators still reflect a broadly bullish structure:

• The pair remains within an ascending channel on the daily chart.
• RSI (14) holds above 50, suggesting buyers still have control.
• AUD/USD trades above the 9-day EMA (currently at 0.6561), providing near-term support.

A break below the 9-day EMA could expose deeper support levels at the 50-day EMA (0.6506) and the ascending channel’s lower boundary near 0.6480.

On the upside, resistance lies at the psychological 0.6650 level and then at the upper channel limit near 0.6680. A break above these levels could reignite bullish momentum.

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