Ella 
AUD/USD extended its early-week losses, falling to a two-week low of 0.6715-0.6710 on Tuesday.
Despite falling U.S. bond yields and markets fully pricing in a September rate cut from the Federal Reserve, AUD/USD has staged a second daily pullback amid further gains in the greenback. As a result, investors continue to be bullish on the prospect of two rate cuts from the Federal Reserve, with the second expected to come at the December 18 meeting.
Market expectations for a Fed rate cut accelerated after Federal Reserve Chairman Jerome Powell said on Monday that three U.S. inflation measures for the second quarter “slightly increased confidence that inflation is moving toward the Fed’s goals.” To many, Powell’s comments appeared to open the door to a rate cut, sooner than previously expected.
On the other hand, the Australian dollar’s decline on Tuesday was accompanied by further weakness in copper prices and a slight increase in iron ore prices.
In terms of monetary policy, it currently appears that the Reserve Bank of Australia will be the last central bank among the G10 to start cutting interest rates.
At its most recent meeting, the Reserve Bank of Australia stuck to its hawkish stance, keeping the official cash rate at 4.35% and saying there would be flexibility in decision-making going forward. Minutes of the meeting showed officials debated whether further interest rate hikes were necessary to curb inflation but ultimately opted to hold off, in part due to concerns that the labor market could slow sharply.
The Reserve Bank of Australia is in no rush to relax policy and expects it will take time for inflation to continue to fall within the target range of 2%-3%. The odds of a rate cut in August are around 25%, rising to around 50% in subsequent months.
The Fed is likely to adopt an accommodative policy stance in the medium term, while the Reserve Bank of Australia is likely to adopt a restrictive policy stance in the longer term, which may provide support for AUD/USD in the coming months.
However, concerns about China’s slowing economic growth momentum may hinder AUD/USD’s continued recovery as the country continues to face post-pandemic challenges. The continued lack of upside potential in Chinese inflation could lead to some stimulus measures from the People’s Bank of China (PBoC), which could ultimately support the Australian dollar, even if weak second-quarter GDP data should restrain bulls.
In terms of economic data, Australia’s next major data release will be Westpac’s leading index on July 17, followed by a speech from Reserve Bank of Australia official Simon.
