Aussie rises to 8-month high, retail sales next

The Australian dollar has posted considerable gains on Thursday. AUD/USD is trading at 0.6816 in the European session, up 0.47% on the day at the time of writing. The US dollar continues to struggle against the major currencies and the Aussie has taken full advantage with an impressive 4.1% gain in August.

Australian retail sales projected to ease

Australia’s retail sales are expected to fall to 0.3% m/m in July, compared to 0.5% in June. The retail sector has been limping as consumers are being squeezed by high interest rates and the high cost of living. The weak economy and a cooling labor market are making consumers even more cautious about discretionary spending.

The Reserve Bank of Australia continues to sound hawkish and Governor Bullock has said that interest rate cuts remain unlikely in the next six months. The markets aren’t buying it and have priced in a rate cut in November with more cuts in early 2025. The RBA discussed a rate hike at the meeting earlier this month but the markets are betting that the RBA won’t become an outlier with the Federal Reserve set to cut rates next month.

The RBA is showing some frustration at the slow pace of disinflation. CPI rose 3.5% on July, down from 3.8% a month earlier but higher than the market estimate of 3.6%. Core CPI eased to 3.7%, the lowest level since January 2022. Inflation remains above the RBA’s target range of 2-3% and the Bank is wary about cutting rates until inflation falls further.

Fed’s Bostic urges caution on rate cut

The Federal Reserve is poised to cut rates next month after Jerome Powell stated last week that it was time to loosen policy. Most FOMC members have come out in favor of a September cut but Atlanta Fed President Raphael Bostic urged the Fed to wait for additional data before lowering rates as it would be a mistake to cut and then have to hike again.

AUD/USD Technical

• AUD/USD pushed above resistance at 0.6788 and is testing resistance at 0.6710. Above, there is resistance at 0.6836
• 0.6762 and 0.6740 are the next support levels

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