In July, Australian household consumption saw a significant rise with year-on-year growth reaching 5.1%, the highest in 20 months. This was driven primarily by strong performance in service sectors such as healthcare, hospitality, aviation, and dining. This data has reinforced market expectations that the RBA will keep interest rates unchanged at its September meeting and may influence the pace of future rate cuts. RBA Governor Michele Bullock noted that while the recovery in consumer spending is positive, continued strength could limit the scope for rate reductions. Q2 GDP figures, released at the same time, showed the economy grew by 0.6%, with discretionary spending rising by 1.4% (the fastest pace in three years). Unit labor costs increased by an annualized 4.4%, indicating ongoing inflationary pressures. As a result, market expectations for RBA rate cuts have moderated somewhat. The probability of a rate cut in November is now around 90%, significantly lower than previously priced-in levels. While these figures provided a slight boost to the Australian dollar, the overall impact was limited.

Although ADP employment data has limited correlation with the official nonfarm payrolls report, multiple indicators suggest the labor market is slowing: job vacancies in July fell more than expected, and the number of unemployed individuals surpassed job openings for the first time since April 2021. The market is closely watching the upcoming August nonfarm payrolls report. If, as expected, only 75,000 jobs are added and the unemployment rate rises to 4.3%, it would likely further cement expectations for rate cuts. However, even as labor market weakness emerges, inflationary pressures remain persistent, constraining the Federal Reserve's policy flexibility. The ISM services sector prices paid index remained elevated at 69.2 in August, indicating ongoing inflationary pressures in the service sector. While Fed Chair Jerome Powell acknowledged rising employment risks and hinted at possible rate cuts, he also emphasized that inflation remains the central focus of monetary policy. The federal funds rate currently remains within the 4.25% to 4.50% range. Overall, although signs of softness in the U.S. labor market have boosted expectations for Fed rate cuts, persistently high service-sector inflation is lending short-term support to the U.S. dollar. The August ISM non-manufacturing PMI rose to 52.0, reflecting strong service-sector demand and recovery. However, the employment index continued to contract, and ADP employment growth came in well below expectations, signaling a clear cooling in the labor market. As a result, market expectations for rate cuts have intensified, with a 98% probability now assigned to a cut at the September meeting. Nonetheless, the persistently high services price paid index at 69.2 underscores the stickiness of inflation, limiting the Fed's ability to pivot quickly to an easing stance. This tension between easing expectations and inflation realities is helping to underpin the U.S. dollar's relative strength. Ahead of the Friday nonfarm payrolls release, inflation concerns will likely remain the main factor supporting the U.S. dollar's resilience in the near term.  

Based on the daily timeframe, the Bollinger Bands narrowed and converged, while the moving averages flattened. Now, the price is oscillating between the Bollinger Upper and Lower Bands. Besides, the MACD line and the signal line have returned above the zero axis, and the RSI stands at 53 (in neutral territory), suggesting a cautious, wait-and-see stance in the short term. A cross above 0.66 may drive the pair to 0.677, while a breach below 0.643 could drag the pair to 0.59. According to the weekly chart, after getting suppressed by the Bollinger Upper Band, the price broke below the EMA12 but found support at the Bollinger Middle Band, followed by a rebound. If it can hold above both the Bollinger Middle Band and EMA12, further upside toward the EMA200 may be possible. Failure to hold these levels could lead to a decline toward the Bollinger Lower Band, currently near 0.62. Therefore, selling at highs is recommended.

Trading direction: Sell

Entry price: 0.653

Target price: 0.63

Stop loss: 0.67

Support: 0.638/0.635/0.63

Resistance: 0.657/0.66/0.667