The Australian Dollar (AUD) gained ground against the US Dollar (USD) on Friday, rebounding to near 0.7020 after a sharp sell-off over the previous two trading days [1]. Despite this uptick, AUD/USD has underperformed in recent weeks, as traders have grown increasingly confident that the Federal Reserve (Fed) will implement additional interest rate hikes this year. The US Dollar was the strongest major currency this week, appreciating by 1.30% against the Australian Dollar [1].
Market attention is now focused on the Reserve Bank of Australia’s (RBA) monetary policy announcement scheduled for Tuesday, which is expected to be a key trigger for the AUD/USD pair [1]. The probability of an RBA rate hike has increased following robust Australian job data for August, released on Thursday. The economy added 39.5k jobs, surpassing the consensus estimate of 20k and reversing a prior decline of 15.9k jobs, with part-time employment rising by 45.8k compared to a drop of 30.8k in July [1].
Strategists at Brown Brothers Harriman highlighted that the August labor force report reinforced expectations for a 25 basis point RBA hike to 4.60% next week, with a 90% probability priced in by markets [1]. Meanwhile, the CME FedWatch tool indicates a 58% chance that the Fed will raise rates at both remaining policy meetings this year [1].
Technically, AUD/USD trades at 0.7023, maintaining a bearish near-term tone as it remains below the 20-period exponential moving average (EMA) at 0.7108 and faces resistance from a series of Fibonacci retracements [1].
CONCLUSION
The Australian Dollar's recent gains are driven by strong domestic job data and heightened expectations for an RBA rate hike. However, persistent US Dollar strength and bearish technical signals suggest continued volatility for AUD/USD. The upcoming RBA policy announcement will be a pivotal event for market direction.