AUD/USD: Rising into uncomfortable territoires for the RBA

• AUD/USD is soft in the Asian open this week ahead of key U.S. retail sales and more Fed' speakers. 
• AUD/USD is currently trading at 0.7016 in a tight range, facing 4th July support turned resistance.

The Aussie was trading higher into the close last week, fuelled by a persistent expectation of a rate cut this month from the Federal Reserve, (Fed'), as Fed speakers maintain a dovish tone despite better than expected data. The Richmond Fed President Barkin echoing Fed Chair Powell’s concerns over the headwinds facing the global economy and Chicago Fed President Evans also hinted at an easing bias.

Earlier in the week, the U.S. Consumer Price Index beat expectations, and on Friday, US producer prices came in better than expected in June. this was yet another sign of inflation in the economy - yet the Dollar was unable to capitalise on that and AUD/USD continued to rise. Producer Prices beat market expectations and increased by 0.3% m/m in June (after increasing 0.2% m/m in the month prior) -  up on a year-on-year basis, to 2.3% in June, unchanged from the month prior. 

"With numerous Fed speakers brushing off the recently upbeat data pulse while maintaining a firm easing bias, markets are all but certain that the Fed will cut rates by at least 25bp at the upcoming FOMC meeting," analysts at ANZ Bank explained. Risk on was the theme, which benefitted the commodity complex, while US equities closed the day at record highs, with the S&P and DJIA up 0.5% and 0.9% to 3013.77 and 27332.03 respectively.

Looking ahead, Japanese markets are closed today for a public holiday so there is unlikely to be much action in Asia. However, for the week ahead, Fed speakers will once again be in focus.  "We look for remarks by Fed Chair Powell and NY Fed President Williams to further solidify the case for a 25bp cut at the July FOMC meeting. Chair Powell reiterated the Fed's desire to "sustain the economic expansion" and Williams acknowledged that arguments for policy easing have strengthened. Look for further remarks by voters Evans, Rosengren and Bullard," analysts at TD Securities explained.  Also, U.S. Retail Sales will likely draw benefit from sound consumer fundamentals. 

Jawboning and rate cuts to curb Aussie's rise

However, Australian stocks have been underperforming as investors remain concerned about trade and the benchmark suffers biggest weekly drop since May with Miners pushing the Australian share-market lower. Indeed, the Aussie trades as a proxy to the trade dispute between the U.S. and China, but the Reserve Bank of Australia, (RBA), is also on the backfoot, in defensive mode. Despite expectations of an additional rate cut from the RBA,  the Aussie is higher now than it was before the RBA first eased on June 4, and well above its recent five-month trough of $0.6832 - Jawboning is to be expected as a continuation higher is likely to damage the country's export sector.

AUD/USD levels

AUD/USD has been firmer of late and is taking on the 4th July support having continued to grind higher from the 61.8% retracement at 0.6914. "We would allow for recovery to 0.7022/48 Above 0.7048 sits the late April peak at 0.7069 and the 200-day moving average at 0.7092. Further up resistance can be spotted at the 0.7207 February high," analysts at Commerzbank argued.