**AUD/USD Edges Lower As US Dollar Strengthens: Technical and Fundamental Analysis**
*Based on the reporting by Vineet Sinha, as published on ForexFactory, with additional information integrated for a comprehensive perspective.*
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## Overview
The Australian dollar (AUD) continues to decline against the US dollar (USD), with the AUD/USD pair heading toward a crucial technical support level, the 200-day exponential moving average (EMA). This movement is largely driven by persistent strength in the greenback due to recent US economic data, which has reinforced expectations that the US Federal Reserve will maintain higher interest rates for an extended period. In contrast, the Reserve Bank of Australia (RBA) remains dovish, further weighing on the AUD.
Below, we analyze the factors influencing the AUD/USD exchange rate, consider technical and fundamental elements, and explore possible scenarios going forward.
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## US Dollar Strength: Key Drivers
The US dollar has experienced renewed strength on the back of robust economic indicators from the United States. This trend has been a primary reason for the softness observed in the AUD/USD pair.
### Main Factors Contributing to USD Strength:
– **Solid US Economic Data:**
– Recent reports confirm a resilient US economy, with strong labor market performance and continued consumer spending.
– US non-farm payrolls, retail sales, and ISM services data have all exceeded expectations, casting a positive light on the economy.
– **Sticky US Inflation:**
– Inflation in the US remains above the Federal Reserve’s 2 percent target.
– The core Personal Consumption Expenditures (PCE) index and Consumer Price Index (CPI) have shown that inflationary pressures are still prevalent.
– **Federal Reserve Policy Outlook:**
– The Federal Reserve has signaled a “higher for longer” approach to interest rates.
– Fed Chair Jerome Powell and other officials have reiterated the commitment to bringing inflation down, leaving the door open for more tightening if data warrants.
– Markets have scaled back their expectations for rate cuts in 2024, reducing the appeal of riskier assets like the Australian dollar and supporting the US dollar.
### Impact on Currency Markets:
– The US Dollar Index (DXY) has touched multi-week highs, reflecting broad-based strength across major currencies.
– High US Treasury yields further attract foreign capital, amplifying demand for the dollar.
– This broad USD rally puts significant downward pressure on commodity-linked currencies like the AUD.
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## Reserve Bank of Australia’s Outlook
The Reserve Bank of Australia continues to maintain a relatively dovish stance compared to its American counterpart. Several underlying factors explain this policy posture.
### Key Points from the RBA:
– **Moderate Economic Growth:**
– Australia’s economic growth is projected to remain moderate, with GDP forecasts downgraded amid subdued domestic demand.
– **Subdued Inflation:**
– While inflation is above target, it is on a downward trajectory. The RBA is projecting that it will
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