AUD Under Pressure as Fed Tightening Expectations Drive Downward Trend

The Australian Dollar (AUD) has continued its downward trend, flirting with the key 0.7000 zone as it struggles to regain its footing against the US Dollar (USD). The pair's decline is largely driven by persistent buying interest in the USD, fueled by expectations of further tightening by the Federal Reserve (Fed) and rising yields.

The AUD's economy remains resilient, supported by domestic demand and positive economic growth. However, business activity has slowed, with preliminary data showing a cooling Purchasing Managers' Index (PMI) for Manufacturing and easing Services PMI. Trade data provided a boost, with Australia recording an A$1.923 billion surplus in July.

Despite this, inflation remains a concern, with price pressures running well above the Reserve Bank of Australia's (RBA) 2%-3% target band. The RBA maintains a hawkish policy bias, citing above-target inflation and upside risks to the outlook.