HIGHLIGHTS
The AUD/USD fell 0.98% on Thursday due to the approaching “Fed Fear” and the RBA maintaining the cash rate at 4.10% in August. Market focus is on Fed Chair Powell, with US data given less attention. The Australian dollar climbed to an early high of $0.64881 before falling to a session low of $0.64125.

Market Risk Sentiment to Influence Powell as Pre-Fed Chair
This morning, there are no economic statistics from China or Australia that investors may respond to. Investors will have to evaluate central bank policies to address inflation, China’s economy, and a changing macroeconomic environment in the absence of economic indicators.

Australian economic indicators suggest that further RBA rate increases are unlikely due to a drop in the annual inflation rate and an increase in unemployment rates. The RBA’s tightening monetary policy cycle is expected to end in July, with the unemployment rate rising from 3.5% to 3.7%.

A rise in unemployment reduces consumer spending, which eases the pressures of demand-driven inflation. In August, the RBA shocked the markets by keeping the cash rate at 4.10%. The economic statistics indicate that the tough monetary policy measures are starting to take effect after 12 rate hikes.

Consumers’ tightening of their purse strings and a deteriorating macroeconomic climate will have an effect on service sector activity and the Australian economy. The services sector contributes more than 60% of the GDP. The RBA’s attempt to prevent pushing the Australian economy into a recession may be difficult given China’s economic problems as well.
In contrast, US economic data indicate that the Fed will raise rates one more time before slowing down. The US economy is hotter than anticipated, which favours the dollar in the monetary policy differential.

The theme for the Fed interest rate trajectory at Jackson Hole is Fed Chair Powell in the Driving Seat: Higher for Longer. The tight labour market and wage growth make investors cautious, even though US private sector PMI readings reduced predictions on one last rate hike.

Powell, the Fed’s chairman, has the power to end the ambiguity that has driven dollar volatility lately. While the US jobless rate decreased from 3.6% to 3.5% in July, the US annual inflation rate increased from 3.0% to 3.2%.

Given the Fed’s dual mandate, the straightforward dynamic of an increase in consumer prices and a decrease in unemployment supports a hawkish view for monetary policy.

Prior to the September FOMC meeting, the Fed will have to take into account yet another set of economic statistics. In his policy speech, Fed Chair Powell may choose to be non-committal or throw a curve ball by discussing the need to combat inflation and a tight labour market at the expense of the US economy.

The Australian dollar will be in a tumultuous situation before Powell makes his speech as Fed Chair.

We anticipate that US economic statistics will take a backseat today as the markets concentrate on the Fed.

Daily Graph
The AUD/USD was below the $0.6430–$0.6450 resistance area on the daily chart. Significantly, the Australian dollar continued to trade below its 50-day and 200-day exponential moving averages, providing bearish short-term and long-term market indications.

The 14-day RSI reading of 40.30 indicates a bearish attitude. The RSI lines up with the EMAs, indicating a decline to below $0.64 to activate the $0.6340–$0.6320 support area. The bulls would then have a look at $0.65 if they were to go through the lower level of the $0.6430–$0.6450 resistance area.

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