Australian Dollar holds gains as US Dollar remains stable amid risk-on sentiment

• The Australian Dollar receives support from the increased risk sentiment on Wednesday.
• Fed member Kugler indicated rates will be maintained longer if upcoming data does not confirm a slowdown in inflation.
• Australia’s 10-year government bond yield steadies around 4.2%, its lowest level in three weeks.

The Australian Dollar (AUD) recovers its daily losses on Wednesday. However, the AUD/USD pair has faced challenges due to a modest rebound in the US Dollar (USD), likely influenced by a hawkish speech from Federal Reserve (Fed) Board of Governors member Dr. Adriana Kugler on Tuesday.

In her remarks, Dr. Kugler acknowledged that inflationary pressures have eased but emphasized that the Fed still needs additional data to justify a rate cut. Kugler indicated that if upcoming data does not confirm that inflation is moving toward the 2% target, it may be appropriate to maintain current rates for a while longer.

The AUD/USD pair could face challenges as investors reduce their expectations for a Reserve Bank of Australia (RBA) rate hike. Despite this, the central bank is still anticipated to delay joining the global rate-cutting cycle. Investors are now focused on Australian employment numbers, due on Thursday, to gain further insights into the monetary policy outlook.

Daily Digest Market Movers: Australian Dollar receives pressure from a hawkish Fed member

• Australia’s 10-year government bond yield steadies around 4.2%, its lowest level in three weeks, mirroring a decline in US bond yields. This followed comments from Federal Reserve Chair Jerome Powell, which strengthened the case for a rate cut by the US central bank in September.
• On Monday, Fed Chair Powell stated that the three US inflation readings from this year "add somewhat to confidence" that inflation is on track to meet the Fed’s target sustainably, suggesting that a shift to interest rate cuts may be imminent.
• The US Retail Sales for June stayed mostly the same for the central bank's expectations. Retail Sales in the United States held steady at $704.3 billion in June, after a 0.3% gain (revised from 0.1%) in May, and are in line with market expectations.
• The third plenum of the Chinese Communist Party's 20th National Congress continues today, being held from July 15 to 18. Standard Chartered expects cuts from the People's Bank of China, both in rates and the reserve requirement ratio (RRR), as GDP growth decelerated in Q2. China’s growth drivers remain uneven, and trade tensions are rising, with the US and EU imposing new tariffs on Chinese electric vehicles (EVs).
• Fed Bank of San Francisco President Mary Daly stated that inflation is cooling down in a way that bolsters confidence that it’s on its way to 2%. However, Daly added that more information is needed before making a rate decision.
• 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%.
• 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.

Technical Analysis: Australian Dollar holds ground near 0.6750

The Australian Dollar trades around 0.6740 on Wednesday. The daily chart analysis shows that the AUD/USD pair consolidates within an ascending channel, indicating a bullish bias. However, the 14-day Relative Strength Index (RSI) declines toward the 50 level, suggesting a correction. A further decline could weaken the bullish trend.

The AUD/USD pair may test the psychological level of 0.6800. A breakthrough above this level could support the pair to approach the upper boundary of the ascending channel near 0.6820.

On the downside, immediate support appears around the 21-day Exponential Moving Average (EMA) at 0.6710. Further support is seen near the lower boundary of the ascending channel at 0.6700. A break below this level could push the AUD/USD pair toward the throwback support at 0.6590.

AUD/USD: Daily Chart