Australian Dollar remains subdued as PBoC leaves LPRs unchanged

• The Australian Dollar loses ground as the People’s Bank of China leaves its one-year LPR unchanged at 3.00%.

• The AUD also faces downward pressure due to ongoing trade tensions between the United States and China.

• The US Dollar maintains its position as robust economic data tempered Fed rate cut expectations.

The Australian Dollar (AUD) loses ground against the US Dollar (USD) on Monday, retracing its recent gains from the previous session. The AUD/USD pair remains subdued after the People’s Bank of China (PBoC) decided to leave its one- and five-year Loan Prime Rates (LPRs) unchanged at 3.00% and 3.50%, respectively. It is important to note that any change in the Chinese economy could impact the Australian Dollar as China and Australia are close trade partners.

The AUD also receives downward pressure from prevailing trade tensions between the United States (US) and China. August 12 will be the deadline for China to finalize a long-term tariff agreement with the US, after a preliminary deal last month to end increasing tariffs.

Traders adopt caution ahead of the upcoming release of the Reserve Bank of Australia’s (RBA) Meeting Minutes. Economists anticipate that the RBA will start easing monetary policy later this year, with the cash rate projected to decline to approximately 3.1% by early 2026. This outlook is underpinned by a balanced labor market and a cautiously optimistic view on economic growth. Traders will also await RBA Governor Michele Bullock’s speech.

Australian Dollar declines as US Dollar holds ground due to robust economic data

The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is holding ground around 98.50 at the time of writing.

The University of Michigan’s (UoM) preliminary Consumer Sentiment Index for July climbed to 61.8 from 60.7 in June, beating expectations of 61.5. Both the Current Conditions and Expectations components improved, reflecting cautious optimism among US households.

FOMC Governor Adriana Kugler said that the US central bank should not lower interest rates "for some time" since the effects of Trump administration tariffs are starting to show up in consumer prices. Kugler added that restrictive monetary policy is essential to keep inflationary psychology in line.

San Francisco Fed President Mary Daly said last week that expecting two rate cuts this year is a "reasonable" outlook, while warning against waiting too long. Daly added that rates will eventually settle at 3% or higher, which is higher than the pre-pandemic neutral rate.

Fed Governor Christopher Waller said on Thursday that he believes that the US central bank should reduce its interest rate target at the July meeting, citing mounting economic risks. Waller added that delaying cuts runs the risk of needing more aggressive action later.

US Retail Sales rose by 0.6% month-over-month in June versus -0.9% prior. This figure came in above the market consensus of 0.1%. Meanwhile, the annual Retail Sales climbed 3.9%, compared to a rise of 3.3% in May.

The US Producer Price Index (PPI) was unexpectedly unchanged in June, against the market consensus of a 0.2% rise. Meanwhile, the core PPI rose by 2.6% YoY versus 3.0% prior, softer than the 2.7% expected.

The latest Fed Beige Book shows that while overall business activity remains healthy and inflation pressures are relatively subdued, underlying cost pressures are building, and business operators remain cautious.

President Trump said in an interview with the Real America's Voice network on Wednesday that he would love for Fed Chair Jerome Powell to resign, but that it would disrupt the markets if the president were to remove him. He also mentioned the possibility of striking a deal with Europe. Regarding tariffs on Canada, he said it’s too soon to comment. A tariff deal with India, however, is very close.

China's Commerce Minister Wang Wentao said on Friday that the economic and trade relations with the United States have gone through storms, but remain important to each other. Wentao also stated that Mutual benefit is the essence of US-China commercial ties. Geneva agreement, London framework effectively stabilised commercial ties, cooled down tensions, he added.

China’s economy expanded at an annual rate of 5.2% in the second quarter, compared to a 5.4% growth in the first quarter and the expected 5.1% growth. Meanwhile, the Chinese Gross Domestic Product (GDP) rate rose 1.1% in Q2, against the market consensus of a 0.9% increase. Moreover, Retail Sales increased by 4.8% YoY in June, against the 5.6% expected and 6.4% prior, while Industrial Production came in at 6.8%, against the 5.6% expected.

Australian Dollar falls toward 0.6500 after retreating from nine-day EMA

AUD/USD is trading around 0.6510 on Monday. The daily chart’s technical analysis indicated a bullish bias is active as the pair consolidates within the ascending channel pattern. However, the 14-day Relative Strength Index (RSI) remains below the 50 mark, suggesting that bearish bias is strengthening. Additionally, the pair remains below the nine-day Exponential Moving Average (EMA), indicating that short-term price momentum is weaker.

On the downside, the primary support appears at the 50-day EMA of 0.6490. A break below this level would dampen the short-term price momentum and prompt the AUD/USD pair to target the ascending channel’s lower boundary around 0.6460, aligned with the three-week low at 0.6454, which was recorded on July 17.

The AUD/USD pair may test the immediate barrier at the nine-day EMA of 0.6521. A break above this level could strengthen the short-term price momentum and support the pair to approach the eight-month high of 0.6595, which was reached on July 11.

AUD/USD: Daily Chart