The Australian dollar extends its gains for a second consecutive day, buoyed by a weakened US dollar attributed to declining US bond yields. Additionally, hawkish remarks from Reserve Bank of Australia (RBA) Governor Michele Bullock support the Aussie Dollar, bolstering the AUD/USD pair.

The RBA maintained its Official Cash Rate (OCR) at 4.35% on Tuesday, in line with expectations. Governor Bullock, during the post-decision press conference, refrained from committing to future policy actions, acknowledging the Australian economy’s cost-of-living challenges, limiting room for further interest rate hikes.

Despite hawkish comments from Federal Reserve (Fed) Chair Jerome Powell, the US Dollar Index (DXY) continues its descent. Powell tempered rate cut expectations, emphasizing vigilance in monitoring inflation towards the 2% core target.

Fed Bank of Cleveland President Loretta Mester suggested potential interest rate cuts later in the year but advised against haste. Fed Bank of Philadelphia President Patrick Harker supported the recent decision to hold interest rates steady, citing anticipated declines in inflation.

Economic indicators show mixed performance: Australia’s Retail Sales rose by 0.3% in Q4, while Trade Balance reduced to 10,959M in January. Australia’s Judo Bank Composite PMI improved to 49, with Services PMI at 49.1. Chinese Caixin Services PMI decreased to 52.7. In the US, ISM Services PMI exceeded expectations at 53.4, with improved Employment Index and Services Prices Paid.

Trade Idea:

With the AUD gaining strength and the USD remaining subdued, consider long positions on AUD/USD, particularly if the RBA maintains its neutral stance. Monitor US economic data and central bank rhetoric for potential market shifts.