Australian Dollar advances due to hawkish comments from RBA Governor Bullock

■  The Australian Dollar appreciates as the RBA may increase rates again if needed.

■  The safe-haven flows may limit the upside of the AUD amid escalated Middle-East tensions.

■  Fed Governor Michelle Bowman suggested that the US central bank may not be prepared to cut rates in September.

The Australian Dollar (AUD) retraces its recent losses against the US Dollar (USD) on Monday. The AUD/USD pair appreciates due to the hawkish sentiment surrounding the Reserve Bank of Australia (RBA). Additionally, the upbeat inflation in China, a close trade partner with Australia, might have provided support for the Aussie Dollar.

RBA Governor Michele Bullock highlighted last week the importance of remaining cautious regarding inflation risks and expressed that the central bank will not hesitate to raise rates again to combat inflation if needed. Those comments came just days after the RBA held rates steady at 4.35% for the sixth straight meeting.

On the USD front, market expectations for a potential interest rate cut by the Federal Reserve (Fed) in September could put pressure on the US Dollar (USD), potentially providing support for the AUD/USD pair.

Investors will likely focus on US producer inflation data set to be released on Tuesday and consumer inflation figures on Wednesday. Traders are looking for confirmation that price growth remains stable.

Daily Digest Market Movers: Australian Dollar rises due to a hawkish RBA

The upside of the risk-sensitive AUD could be restrained due to safe-haven flows amid increased geopolitical tensions in the Middle East. On Sunday, Defense Minister Yoav Gallant informed US Defense Secretary Lloyd Austin that Iran's military activities indicate preparations for a significant strike on Israel, as reported by Axios writer Barak Ravid.

On Sunday, Federal Reserve Governor Michelle Bowman stated that she continues to see upside risks for inflation and ongoing strength in the labor market. This suggests that the Fed may not be prepared to cut rates at their next meeting in September, according to Bloomberg.

China's Consumer Price Index (CPI) rose 0.5% year-on-year in July, exceeding the expected 0.3% and previous 0.2% readings. Meanwhile, the monthly index also increased 0.5%, swinging from the previous decline of 0.2%.

Westpac updated its RBA forecast, now predicting the first rate cut will occur in February 2025, a shift from the previously anticipated November 2024. They also revised their terminal rate forecast to 3.35%, up from the previous 3.10%. The RBA is now viewed as more cautious, needing stronger evidence before considering rate cuts.

On Thursday, Kansas City Fed President Jeffrey Schmid stated that reducing monetary policy could be "appropriate" if inflation remains low. Schmid noted that the current Fed policy is "not that restrictive" and that while the Fed is close to its 2% inflation goal, it has not yet fully achieved it, per Reuters.

Last week, Treasurer Jim Chalmers contested the RBA's view that the economy remains too robust and that large government budgets are contributing to prolonged inflation, according to Macrobusiness.

RBA Governor Michele Bullock mentioned that the board had seriously considered increasing the cash rate from 4.35% to 4.6% due to ongoing concerns about excess demand in the economy. Additionally, RBA Chief Economist Sarah Hunter noted that the Australian economy is performing somewhat stronger than previously anticipated by the RBA.

Technical Analysis: Australian Dollar hovers around 0.6600, aligns with throwback support

The Australian Dollar trades around 0.6590 on Monday. The daily chart analysis shows that the AUD/USD pair is positioned within an ascending channel, indicating a bullish bias. Meanwhile, the 14-day Relative Strength Index (RSI) is consolidating below the 50 level. A move above this level could suggest a strengthening of bullish momentum.

In terms of resistance, the AUD/USD pair may test the upper boundary of the ascending channel at the 0.6630 level. A breakout above this level could propel the pair toward the region near its six-month high of 0.6798.

On the downside, the AUD/USD pair may find immediate support at the throwback level of 0.6575. A drop below this level could reinforce a bearish bias, potentially pushing the pair toward the lower boundary of the ascending channel around 0.6540. Additional support is seen at the throwback level of 0.6470.

AUD/USD: Daily Chart