The US dollar fell sharply on Tuesday due to a combination of renewed US political worries after Republicans in Congress failed to pass health care reform legislation, as well as hawkish-shifting central banks across the globe contrasting with the increasingly dovish-leaning Federal Reserve.
The latest of these major central banks to begin turning towards the hawkish side has been the Reserve Bank of Australia. On Tuesday in Australia, the RBA released the minutes from its early July policy meeting. The minutes revealed that RBA policymakers were, on balance, generally optimistic about the Australian and global economies, suggesting the possibility of tighter policy on the horizon in line with other major central banks. This more upbeat RBA stance fueled a further rise for the Australian dollar as the US dollar remained heavily pressured.
AUD/USD’s upward trajectory accelerated sharply last week, when it surged abruptly to break out above key resistance around the 0.7750 level. From there, the currency pair followed-through on Tuesday after the RBA minutes were released, hitting and exceeding its next major target around the 0.7900 resistance level.
A key upcoming event that should affect this trajectory will be the release of the June Australian employment report on Thursday. This report will include both employment change as well as the unemployment rate. For the previous three months, Australian employment change has far exceeded expectations, leading the RBA to comment favorably on the domestic labor market. Another better-than-expected number on Thursday (14.4K jobs added in June are currently expected) could lead to further strengthening for the Australian dollar against the US dollar. With any such further boost, the next upside targets for AUD/USD are at the 0.8000 psychological level followed by a key resistance target around 0.8100.