Aussie Dollar Steadies as Markets Look to RBA for Next Move

Key Moments

AUD/USD traded slightly higher near 0.7020 in European hours after finding support around 0.7000.
CME FedWatch data showed nearly a 58% probability of Federal Reserve rate hikes at both remaining policy meetings this year.
Australia’s August labor force report strengthened expectations for a 25 bps RBA hike to 4.60% that strategists said was 90% priced in.

Australian Dollar Recovers After Sharp Sell-Off

The Australian Dollar regained some ground against the US Dollar on Friday, rebounding after a steep decline over the previous two trading sessions. During European trading, AUD/USD inched higher toward 0.7020, having found support in the vicinity of the 0.7000 level.

Despite the intraday bounce, AUD/USD has lagged in recent weeks as market participants have grown more convinced that the Federal Reserve will implement additional interest rate increases this year.

US Dollar Performance Against Major Currencies

The article noted that the US Dollar was the strongest this week versus the Australian Dollar. A weekly performance table was referenced, showing the percentage change of the US Dollar against major peers.

A related heat map was described as presenting percentage changes among major currencies, where the currency on the left acts as the base and the currency along the top serves as the quote. For instance, choosing the US Dollar on the left and moving across to the Japanese Yen would display the percentage change for USD (base)/JPY (quote).

Fed Expectations and RBA Policy Outlook

According to the CME FedWatch tool, markets have been pricing an almost 58% likelihood that the Federal Reserve will raise interest rates at both of its remaining policy meetings this year.

Looking ahead, traders are focused on the Reserve Bank of Australia’s upcoming monetary policy announcement on Tuesday, which is seen as the next key catalyst for AUD/USD.

Market commentators indicated that the probability of an RBA rate hike at next week’s meeting has risen following stronger-than-expected Australian labor market data for August, released on Thursday.

Labor Market Data and Strategist Views

Strategists at Brown Brothers Harriman highlighted that recent domestic data have strengthened expectations for additional policy tightening. They observed that Australia’s August labor force figures supported the case for an RBA rate increase.

According to BBH, “Australia’s August labor force report reinforced the case for a 25bps RBA hike to 4.60% next week (90% priced-in),” after the economy “added more jobs than expected (actual: +39.5k, consensus: +20k, prior: -15.9k) driven by part-time employment (+45.8k vs. -30.8k in July).”

AUD/USD Technical Setup

On the daily chart, AUD/USD was trading at 0.7023 and retained a negative short-term bias. The pair remained below the 20-period exponential moving average (EMA) at 0.7108 and several Fibonacci retracement levels that continue to act as overhead resistance.

The pair slipped back under the 50.0% Fibonacci retracement at 0.7052 and the 38.2% retracement at 0.7096. The Relative Strength Index (14), near 34.9, pointed to growing downside momentum rather than signaling that the market was deeply oversold.

AUD/USD Technical Levels
Support	Resistance
0.7008 – 61.8% Fibonacci retracement	0.7052 – 50.0% Fibonacci retracement
0.6945 – 78.6% Fibonacci retracement	0.7096 – 38.2% Fibonacci retracement
0.6865 – 100% Fibonacci retracement base	0.7108 – 20-period EMA
	0.7151 – 23.6% Fibonacci retracement
	0.7240 – Fibonacci reference level for extended recovery

On the downside, immediate support was identified at the 61.8% Fibonacci retracement at 0.7008, followed by the 78.6% retracement at 0.6945 and the full 100% retracement base at 0.6865. On the upside, initial resistance appeared at the 50.0% retracement at 0.7052, then the 38.2% level at 0.7096, the 20-period EMA at 0.7108, and the 23.6% retracement at 0.7151. A more distant cap for any stronger rebound was noted around the 0.7240 Fibonacci level.