• US Treasury yields soared overnight amid expectations for a Trump win.

• Data on Monday showed that the US manufacturing sector shrank further in June.

• Investors are pricing a 36% chance that the RBA will hike rates in August.

The AUD/USD outlook shows solid bearish sentiment as the dollar strengthens with rising Treasury yields. Meanwhile, investors were digesting minutes of the Reserve Bank of Australia’s last policy meeting.

US Treasury yields soared overnight amid expectations for a Trump win. After the presidential debate last week, it was clear that Trump did better than Biden. As a result, investors have been pricing the possibility of a Trump presidency, which would increase tariffs and government borrowing. This, in turn, would lead to a rise in inflation, boosting the dollar.

Meanwhile, data on Monday showed that the US manufacturing sector shrank 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 that the economy is slowing down. Therefore, it supports Fed rate cut expectations. Typically, such a report would have weighed on the dollar. However, a rally in Treasury yields overshadowed this downbeat report.

Market participants eagerly await Powell’s speech and the nonfarm payrolls report to provide more clues on the outlook for Fed rate cuts.

Elsewhere, RBA minutes showed that policymakers debated raising rates to lower inflation. However, they decided to keep rates steady due to the risk of a significant slowdown in Australia’s labor market. Still, investors are pricing in a 36% chance that the central bank will hike rates in August. This will depend on the inflation figures for Q2.

AUD/USD key events today

• Fed Chair Powell speaks
• US JOLTS job openings

AUD/USD technical outlook: Bears test the 0.6640 solid barrier

On the technical side, the AUD/USD price trades near the 0.6640 solid support level. The price has remained in a sideways move between the 0.6580 support and the 0.6700 resistance levels. Therefore, there is no clear direction in the market.

Nonetheless, bears are currently in control, with the price trading below the 30-SMA and the RSI slightly below 50. If bears maintain control, the price will likely break below 0.6640 to retest the 0.6580 support level. However, if the support holds firm, the price will break above the SMA to retest the 0.6700 resistance level.

https://www.forexcrunch.com/blog/2024/07/02/aud-usd-outlook-rising-treasury-yields-bolster-us-dollar/