AUD/USD rebounds on Friday, trading near 0.7080 after falling to around 0.7044 on Thursday. The Australian Dollar is benefiting from a combination of hawkish Reserve Bank of Australia (RBA) commentary and renewed weakness in the US Dollar following softer US inflation data.

RBA Assistant Governor Chris Kent said recent interest-rate increases are having the desired impact but emphasized that additional tightening could still be required if new inflationary pressures emerge. His comments reinforce the cautious but hawkish stance adopted by the central bank earlier this week.

The RBA kept its cash rate unchanged at 4.35% at its latest meeting, with Governor Michele Bullock indicating that policymakers wanted more economic information before making another move. However, she also stressed that another rate increase remains possible. This keeps expectations of further tightening alive and provides continued support for the Australian Dollar.

Societe Generale described the RBA’s latest communication as hawkish, noting that policymakers remain committed to restrictive monetary conditions and are prepared to act if inflation risks intensify. Rabobank similarly expects another rate increase later this year, despite the central bank’s decision to remain on hold.

Meanwhile, the US Dollar remains under pressure after softer inflation figures reduced expectations for a Federal Reserve rate hike in September. The CME FedWatch Tool now shows a 34.8% probability of an increase, down sharply from around 60% two weeks ago. This shift in rate expectations has helped improve demand for higher-yielding currencies such as the Australian Dollar.

Attention now turns to US Retail Sales and the preliminary University of Michigan Consumer Sentiment Index. Retail Sales are expected to increase 0.1% in July after rising 0.2% in June, while consumer sentiment is forecast to ease to 54.5 from 55.2.

The incoming data could determine whether AUD/USD extends its recovery, particularly as investors assess the combination of cooling US labor conditions, moderating inflation and the RBA’s willingness to tighten further.

Trade Idea: Consider buying AUD/USD above 0.7060, targeting 0.7140, with a stop-loss below 0.7020 if hawkish RBA expectations and Dollar weakness persist.