Australian Dollar regains momentum as hawkish RBA meets softer US inflation

• The Australian Dollar gains 0.31% on Friday, recovering from Thursday’s decline as domestic monetary policy expectations remain supportive.
• Comments from an Australian central bank official keep the prospect of further interest-rate increases on the table.
• Softer United States inflation figures weigh on the US Dollar ahead of July Retail Sales data.

AUD/USD rebounds on Friday and trades around 0.7080 at the time of writing, gaining 0.31% on the day after falling as low as 0.7044 on Thursday. The Australian Dollar (AUD) finds support from hawkish comments by Reserve Bank of Australia (RBA) Assistant Governor Chris Kent, while the US Dollar (USD) remains under pressure following softer United States (US) inflation data.

RBA Assistant Governor Chris Kent said on Thursday that recent interest-rate increases are producing their intended effects, but warned that further tightening remains possible if new inflationary risks emerge. His remarks reinforce the relatively hawkish message delivered by the Australian central bank earlier this week.

The RBA left interest rates unchanged at its latest monetary policy meeting. Governor Michele Bullock indicated that policymakers preferred to wait for additional information before acting again, while stressing that another rate increase remains under consideration. This stance keeps expectations of further monetary tightening alive and provides support to the Australian Dollar.

At the same time, the US Dollar struggles to regain momentum after softer inflation figures reduced expectations of an interest rate increase by the Federal Reserve (Fed) in September. According to the CME FedWatch Tool, markets price a 34.8% chance of a rate increase at the September meeting, down from around 60% two weeks earlier.

Attention now turns to US Retail Sales data due later on Friday. Markets expect sales to rise 0.1% in July after increasing 0.2% in June. Later in the day, the preliminary University of Michigan Consumer Sentiment Index for August is expected to ease to 54.5 from 55.2 in July. With inflation concerns and signs of cooling labor-market conditions remaining in focus, the two releases could provide fresh direction for AUD/USD heading into the end of the week.

RBA holds but hawkish tone keeps Aussie rate hike risk alive

Strategists at Societe Generale note that in Australia, the RBA left the cash rate target on hold at 4.35%, but “lowered the trajectory of the policy rate and inflation.” Despite that adjustment, they judge that “the statement was hawkish,” highlighting Governor Bullock’s pledge that the bank “would not hesitate to act if needed.” In their view, “monetary policy must stay restrictive and additional tightening is not ruled out.”

Rabobank points out that the RBA left rates unchanged this week, with markets initially interpreting the accompanying statement as “relatively dovish.” However, Governor Bullock quickly pushed back against that perception, revealing that policymakers debated both holding and hiking, and stressing that another increase remains “quite possible.” While Rabobank acknowledges that the RBA clearly hopes previous tightening will prove sufficient, they “remain unconvinced and continue to expect one more hike later this year.”

AUD/USD technical analysis

In the one-hour chart, AUD/USD trades at 0.7084, maintaining a bullish near-term bias as it holds above the 100-period simple moving average (SMA) at 0.7061 and the 200-period SMA at 0.7051. The pair is pressing against the upper end of its recent range, with the upward-sloping trend structure now pointing toward the break area around 0.7090, while the Relative Strength Index (14) stretches into overbought territory near 72, hinting that upside momentum is strong but increasingly vulnerable to consolidation.

On the topside, initial resistance is seen at the trend-line break level around 0.7090, followed closely by the horizontal cap at 0.7091, forming a tight barrier just above current price. On the downside, immediate support emerges at the 100-period SMA near 0.7061, ahead of the 200-period SMA at 0.7051, with a lower structural floor at 0.7040 that would come into focus if profit-taking drives a deeper pullback.

(The technical analysis of this story was written with the help of an AI tool. Know more.)