Australian Dollar holds gains near 0.7100 despite Fed rate hike, IMF urges RBA to stay hawkish

The Australian Dollar (AUD) gained ground to around the 0.7090 level during early Asian trading hours on Thursday, amid traders' assessment of the Federal Reserve's recent interest rate hike and US President Donald Trump's comments. The Federal Reserve increased interest rates for the first time in three years to 3.75%-4.0% on Wednesday, as widely anticipated.

Fed Chair Kevin Warsh explained that the move was due to inflation being too high and persistent, labeling it a "sober" and "responsible" decision. He also hinted at further potential rate hikes to curb rising prices. Money markets calculated a 49.8% probability of a Fed rate hike in October, according to the CME FedWatch tool. Despite the Fed's hawkish stance, US President Trump urged the US central bank to reduce interest rates to 1% or lower, claiming the US is "carrying" every country in the world.

The Reserve Bank of Australia (RBA) maintained the Official Cash Rate (OCR) at 4.35% following three consecutive hikes this year. Markets now estimate a near 76% chance that the RBA will raise the OCR to 4.60% at its next meeting, according to the RBA Rate Tracker. The International Monetary Fund (IMF) advised the RBA to be ready to increase interest rates due to persistent inflation risks and suggested government spending cuts to aid disinflation.

Strategists at UOB Group retained a cautious medium-term outlook on AUD/USD, stating that while further weakness is possible, short-term conditions were oversold and AUD needed to fall below 0.7100 before moving to 0.7050. The AUD/USD pair remains in a bearish short-term trend, with the price below the 20-day Bollinger Bands' middle line and the 100-day simple moving average (SMA) providing preliminary support just below the market.

Momentum has weakened, with the 14-day Relative Strength Index (RSI) nearing the low-40s, indicating fading bullish pressure rather than a clear oversold condition. Immediate resistance lies at the lower Bollinger band near 0.7095, followed by the Bollinger SMA center near 0.7166 and the upper band around 0.7240. On the downside, the 100-day SMA at 0.7080 serves as the first support level; a sustained drop beneath this level could trigger a further decline in AUD prices.