Australian Dollar rises on hawkish RBA outlook

The Australian Dollar (AUD) experienced a rise for the second consecutive day, trading near 0.7090 during Asian trading hours on Monday. This increase was attributed to the Reserve Bank of Australia's (RBA) hawkish policy stance. Societe Generale analysts noted that the RBA's statement was "hawkish" and that Governor Michele Bullock declared the bank would not hesitate to act if necessary.

This expressed readiness to tighten policy further, should inflation not moderate as anticipated. Rabobank's strategy team remained skeptical that the RBA's tightening cycle had concluded, emphasizing that the Governor's recent communication did not fully rule out additional actions. Consequently, the bank reiterated its belief that the current policy stance may not suffice, and further hikes are expected later in the year.

Meanwhile, the US Dollar (USD) declined due to weaker-than-expected US economic data and shifting central bank expectations. The Retail Sales data released by the US Census Bureau showed a 0.6% month-over-month decline in July, falling short of the market consensus of 0.1% growth. Annual Retail Sales rose 5.0% in July, compared to 6.8% in the previous month.

Traders had reduced their expectations for Federal Reserve rate hikes following a series of softer US economic indicators, including the Consumer Price Index (CPI), Producer Price Index (PPI), and Retail Sales. The Federal Reserve's Governor, Jerome H. Powell, delivered a more dovish tone on inflation, as indicated by a 4.6/10 FXS Speechtracker score, significantly lower than the historical average of 6.8/10.

This shift suggested a less hawkish stance and a growing comfort with disinflation, despite the US economy being described as "steady."