- US Treasury yields jumped overnight amid expectations of a Trump victory.
- Data from Monday showed that the US manufacturing sector contracted further in June.
- Investors estimate a 36% chance that the RBA will raise rates in August.
The AUD/USD outlook shows solid bearish sentiment as the dollar strengthens with rising Treasury yields. Meanwhile, investors were reading minutes from the Reserve Bank of Australia’s latest policy meeting.
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US Treasury yields jumped overnight amid expectations of a Trump victory. After the presidential debate last week, it was clear that Trump fared better than Biden. As a result, investors have priced in the possibility of a Trump presidency, which would increase tariffs and government borrowing. This, in turn, would cause inflation to rise, boosting the dollar.
Meanwhile, data from Monday showed that the US manufacturing sector contracted further in June. The PMI number fell from 48.7 to 48.5 compared to expectations for an increase to 49.2. A decline in business activity is a sign of economic slowdown. Therefore, it supports the Fed’s rate cut expectations. Typically, such a report would be heavy on the dollar. However, rising Treasury yields overshadowed this poor report.
Market participants are eagerly awaiting Powell’s speech and the non-farm payrolls report to provide more clues about the outlook for a Fed rate cut.
Elsewhere, RBA minutes showed that policymakers discussed raising rates to reduce inflation. However, they decided to keep rates steady due to the risk of a significant slowdown in the Australian labor market. Still, investors are pricing in a 36% chance the central bank will raise rates in August. It will depend on inflation for Q2.
AUD/USD key events today
- Fed Chairman Powell is speaking
- US JOLTS job openings
AUD/USD Technical Outlook: Bears are testing a solid barrier at 0.6640
On the technical side, the AUD/USD price is trading near a solid support level of 0.6640. The price remained in a sideways movement between the support level of 0.6580 and the resistance level at 0.6700. Therefore, there is no clear direction in the market.
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Nonetheless, the bears are currently in control, with price trading below the 30-SMA and RSI just below 50. If the bears maintain control, the price is likely to break below 0.6640 to retest the 0.6580 support level. However, if the support remains firm, the price will break above the SMA to retest the 0.6700 resistance level.
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