The Australian Dollar (AUD) opened the week with further losses against the US Dollar (USD), trading around 0.6640 on Monday. This decline is primarily attributed to falling copper prices and the People’s Bank of China’s (PBoC) interest rate cut of 10 basis points. Investors are eagerly awaiting upcoming economic data, including Q2 GDP revisions and PCE from the US, as well as Judo PMIs from Australia, to guide their trading decisions for the week.

Despite signs of weakness in the Australian economy, persistent high inflation continues to deter the Reserve Bank of Australia (RBA) from easing its monetary policy, potentially limiting further AUD depreciation. Notably, the RBA remains among the last G10 central banks expected to initiate rate cuts, which could help sustain recent gains in the AUD.

Market Movers:

• PBoC Rate Cut: The PBoC lowered both its 5-year and 1-year interest rates below market expectations, impacting the Australian Dollar negatively.
• Falling Copper Prices: The decline in copper prices, a major Australian export, further contributed to the AUD’s weakness.
• Australian Labor Market: While the Australian Bureau of Statistics confirmed strong employment figures, the unemployment rate ticked higher, raising questions about the RBA’s future stance.

Market expectations currently lean towards a 50% probability of an RBA rate hike in either September or November, reflecting the central bank’s hawkish stance. Conversely, the likelihood of a Federal Reserve rate cut in September stands at approximately 90%.

Technical Analysis:

The AUD/USD pair has been in a correction phase after its early July rally. However, the recent loss of the core support level around 0.6000-0.6040 raises concerns about a potential deeper downside unless the pair can reclaim this range. Technical indicators like the RSI and MACD also hint at weakening momentum, suggesting a possible continuation of the downward trend.