The Australian Dollar (AUD) experienced additional losses against the US Dollar (USD) despite strong labor market data from Australia reported earlier in the week, which prompted for a more hawkish Reserve Bank of Australia (RBA). The demand for the US seems to be growing thanks to interest rate revisions, which saw Federal Reserve (Fed) members forecasting fewer rate cuts this year. Additionally, the Greenback retained its strength despite soft University of Michigan (UoM) figures reported during the European session.

The Australian economy has shown signs of weakness yet the persistent high inflation is prompting the Reserve Bank of Australia (RBA) to delay cuts, which may limit its decline. The RBA meets next Tuesday, and investors will look for further clues. Markets are pricing the first rate cut only for May 2025. Still, risks are skewed toward an earlier start.

Daily digest market movers: Australian Dollar sustains sell-off, markets digest UoM figures from the US

• No significant highlights were detected from the Australian economy on Friday.
• On the US side, Consumer confidence deteriorated with the University of Michigan's Consumer Sentiment Index decreasing to 65.6 from 69.1 in May. This reading came in below market expectations of 72.
• The Current Conditions Index declined to 62.5 from 69.6, and the Consumer Expectations Index fell to 67.6 from 68.8.
• The survey details revealed that the one-year inflation expectation remained stable at 3.3%, while the five-year inflation outlook rose to 3.1% from 3%.
• Earlier in the week, stronger-than-expected Employment data for May bolstered speculation that the Reserve Bank of Australia (RBA) would maintain its Official Cash Rate at its current levels for the year.
• In addition, the Australian Unemployment Rate reduced to 4.0% as projected from 4.1% in April.
• On the Fed’s side, market hopes for rate cuts have persistently clashed with the Fed’s own rate cut expectations through 2024, and according to the CME’s FedWatch Tool, rate markets maintain over 60% odds of at least a 25 basis-point rate trim on September 18.

Technical analysis: AUD/USD sellers persist, outlook turns negative

The Relative Strength Index (RSI) now sits below 50 and points downwards indicating a negative momentum. Meanwhile, the Moving Average Convergence Divergence (MACD) prints steady rising red bars hinting at persistent selling pressure.

The short-term outlook has turned negative as the pair fell below the 20-day Simple Moving Average (SMA) toward 0.6613, indicating a loss in buying steam. If this trend continues, the 100 and 200-day Simple Moving Averages (SMAs) could serve as potential barriers around the 0.6560 area.

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