Australian Dollar edges higher above 0.7200 on rising RBA hike bets, eyes on US NFP data

The Australian Dollar (AUD) experiences a slight rise above 0.7200 amid heightened hopes of a potential rate hike from the Reserve Bank of Australia (RBA), with traders keeping an eye on the forthcoming US Nonfarm Payrolls (NFP) data. Initially, the US Dollar (USD) loses ground against the AUD following Federal Reserve (Fed) Governor Christopher Waller's remarks.

Waller hints at a cautious approach for the Fed's September policy meeting, indicating a potential standstill in interest rate hikes unless there are unforeseen changes in inflation data. Waller's stance, leaning towards maintaining steady rates at the September meeting, causes traders to lower expectations of a US rate increase for this month, resulting in a 50.2% probability, down from 63.2% on Wednesday, as per the CME's FedWatch tool.

The release of the US August job figures later in the day is expected to shed light on the future trajectory of US interest rates. Economists forecast a modest increase of 56,000 jobs in August, with the unemployment rate remaining steady at 4.1%. Australia's economy demonstrated a 0.4% quarter-on-quarter growth in the second quarter (Q2), marginally surpassing expectations, according to the Australian Bureau of Statistics (ABS) on Wednesday.

This favorable data bolsters the likelihood of an RBA rate hike in the near term. Consequently, traders have elevated the probability of an RBA rate hike in September to approximately 70%, up from 50% before the data release, based on Bloomberg's analysis of futures market pricing. Rabobank's Global Daily underscores that Australia's trade balance has shown a slight weakening, with a reduction in the monthly trade surplus and a revision upward for June's figures.

This combination is set to be a focal point ahead of the RBA Chief Economist Hunter's remarks to the Australian Senate, as markets await further insights into the central bank's interpretation of recent shifts in external balances and domestic conditions. During the Fed's speech, Waller adopted a comparatively moderate tone, with the FXS Speechtracker score at 6.1, slightly lower than the historical average of 6.3, while retaining a tightening bias contingent on August's inflation data.

The Fed's message underscores a cautious optimism regarding disinflation, as long as inflation remains on a declining trend, but remains sensitive to any unexpected uptick that could prompt a rate hike. The FXS Fed Sentiment Index declines by 2.06 points to 125.38, indicating a modest reduction in the perceived hawkishness from Waller's recent communications, as measured by the FXS Speechtracker.

However, despite this slight pullback, the index remains well above the neutral 100 mark, signifying that the Fed is firmly in a hawkish position, implying continued expectations of further tightening despite the tempered tone. In the daily chart, AUD/USD trades at 0.7209, maintaining a bullish outlook as it trades above the 100-day simple moving average (SMA) of 0.7079 and the Bollinger middle band around 0.7133.

The pair is nearing the Bollinger upper band near 0.7232, while the Relative Strength Index (RSI) at approximately 67 suggests that momentum remains constructive yet approaching overbought conditions. On the downside, initial support is found at the Bollinger middle band at 0.7133, preceding the 100-day SMA at 0.7079 and the lower Bollinger band near 0.7033 should a deeper retracement occur.

The topside resistance is primarily at the Bollinger upper band at 0.7232, with a sustained break above this level potentially signaling further gains within the prevailing uptrend.