In the first half of the day, the Australian dollar showed a downward dynamic against the greenback, despite the latter's general weakness. The U.S. Dollar Index remains under pressure, which means the Aussie is pulling the AUD/USD pair down. Due to the weak position of the U.S. currency, the pair's bearish momentum was mild and short-lived, but the situation overall is quite telling.

The Australian dollar came under pressure following the release of the RBA's July meeting minutes, whose main messages did not appeal to AUD/USD buyers.

To briefly recap: at its most recent meeting, the Reserve Bank of Australia unexpectedly left all monetary policy parameters unchanged, contrary to the expectations of most analysts who had forecast a 25-basis-point rate cut. Nevertheless, despite the central bank adopting a wait-and-see approach, the outcome of the July meeting was interpreted negatively for the Australian dollar. De facto, the RBA hit pause, but did not abandon its previously stated course toward policy easing. Subsequent data releases only increased the likelihood of a rate cut in August.

For example, signs of weakness have begun to appear in the Australian labor market. In June, unemployment rose to 4.3%, the highest level since November 2021. Youth unemployment (ages 16–24) jumped to 10.4%, up from 9.5%. Employment increased by only 2,000 jobs, while most analysts had expected a gain of 21,000. Moreover, full-time employment dropped by 38,200, while part-time jobs rose by 40,200. The total number of hours worked in the Australian economy declined by 0.9%.

In other words, the labor market gives the RBA room to cut interest rates again at the August meeting. The final piece of the puzzle is inflation, with quarterly data due next week — on July 30.

According to preliminary estimates by several analysts, the overall Consumer Price Index (CPI) in Q2 is expected to slow to 2.1% y/y (from a previous reading of 2.4%). On a quarterly basis, the CPI is also projected to decline to 0.6% (or 0.7%, according to other estimates). Core inflation is expected to come in at 2.5% (or slightly higher at 2.7%, per some forecasts).

Several fundamental factors support this expected slowdown in CPI: a gradually cooling labor market, weak investment growth, sluggish consumer demand (ABS data showed flat/negative retail turnover in April–May), falling commodity and energy prices (Australia's export price index for iron ore and gas fell, and average gasoline prices declined by 4–6% in June–July), and stabilization in housing rental prices. Additionally, the secondary inflationary impulse from wage growth is weakening (year-on-year WPI growth in Q1 was 3.4%, down from 4.0% a year earlier). The high base effect may also play a role: CPI surged to 3.8% in Q2 2024, creating a high base for comparison and mechanically lowering the y/y figure.

In short, all these signals indicate that inflation is likely to slow in Q2, significantly increasing the likelihood of an interest rate cut in August.

The minutes of the RBA's July meeting, published on Tuesday, confirmed these dovish expectations. The central bank indicated it remains on the path toward policy easing — the only point of discussion is the pace of rate cuts. Regarding the pause taken in July, the Board stated that it was intended to gain more clarity on the cooling of inflation and the labor market.

Thus, the current fundamental landscape suggests that sustained AUD/USD growth is only possible if the U.S. dollar continues to weaken. The Aussie alone is not strong enough to lift the pair based on domestic fundamentals. For instance, the downward impulse in the pair was effectively neutralized by a decline in the U.S. Dollar Index to the mid-97 range (compared to the previous reading of 98.23), reflecting broad-based weakness in the greenback. The ongoing scandal surrounding the costly renovation of the Fed's headquarters — with Jerome Powell at the center, facing accusations from the White House of "mismanagement" and from a congressman of perjury — is putting considerable pressure on the dollar. Thanks to this, the Aussie currently feels relatively confident.

From a technical standpoint, on the daily chart, AUD/USD remains between the middle and lower lines of the Bollinger Bands indicator, above the Kumo cloud, but between the Tenkan-sen and Kijun-sen lines. Long positions should only be considered once the Aussie breaks through the 0.6550 resistance level (the middle line of the Bollinger Bands on D1). In this case, the price would move between the middle and upper Bollinger Bands lines, and the Ichimoku indicator would form a bullish "Parade of Lines" signal. The target for the upward movement would then be 0.6620 — the upper line of the Bollinger Bands on the daily chart. Short positions should (for now) be avoided, given the overall weakness of the U.S. dollar.