Australian dollar plunge alert! The 0.6500 defense line is broken, bearish or detonates the foreign exchange market "battle royale"

In early European trading on Tuesday (August 19), the Australian dollar continued its decline for the second consecutive trading day, trading at 0.6491, slightly down 0.04% from the previous day's closing price of 0.6493, reaching the lowest level since 13 days, and the intraday volatility range: 6476-0.6497. Despite a significant improvement in Westpac's consumer confidence index - surging 5.7% to 98.5 in August (up only 0.6% in July), the Australian dollar continued to decline against the US dollar. The index has hit a new high since February 2022, mainly due to the Reserve Bank of Australia (RBA) cutting interest rates by 75 basis points since January.

Matthew Hassan, head of macro forecasting in Australia, said the end of long-running consumer pessimism might be imminent but that further easing might be needed to maintain the current momentum, although he stressed there was no immediate pressure on policymakers to cut interest rates further.

The Australian dollar fell against the dollar while the dollar continued to strengthen on the back of geopolitical developments. US President Donald Trump said preparations for a trilateral summit between the leaders of the United States, Russia and Ukraine would start soon, and revealed that Putin had agreed to accept security guarantees. The parties need to negotiate a possible territorial exchange.

The Australian dollar fell, and the dollar stabilized due to geopolitical developments

The U.S. Dollar Index (DXY), which measures the dollar's performance against six major currencies, was trading around 98.00. Traders were waiting for the Jackson Hole Economic Policy Seminar, and especially a speech by Federal Reserve Chairperson Jerome Powell, for clues about policy decisions in September.

President Volodymyr Zelenskiy on Monday night stressed the need for genuine peace, welcomed US involvement in providing security guarantees and confirmed plans for large-scale arms purchases. Marco Rubio, US secretary of state, said on Tuesday that he would work with European allies and non-European countries to develop security guarantees for Ukraine.

The Trump administration has expanded the application of 50% import tariffs on steel and aluminum products, adding 407 items to the US Harmonized Tariff List. The new rules took effect on August 18. President Trump also told reporters that he plans to announce more steel tariffs in the near future and plans to impose new tariffs on semiconductor imports.

Recent US economic data have reinforced the Fed's dovish policy expectations. The CME Fed Watch tool shows that the market expects an 84% chance of a 25 basis point rate cut in September. In an interview on Wednesday, US Treasury Secretary Scott Besant said short-term interest rates should be 1.5-1 percentage points lower than the current effective base rate of 4.33%, adding that the Reserve Bank of Australia may choose to cut interest rates by 50 basis points in September.

Bescent also revealed that US and Chinese trade officials will meet again in the next two to three months to discuss the future of economic and trade relations.

The Reserve Bank of Australia cut interest rates by 25 basis points as expected on Tuesday, cutting the official cash rate (OCR) from 3.85% to 3.6% at its August policy meeting.

The Australian dollar fell below the confluence zone near 0.6500

The AUD/USD is trading around 0.6490. The technical analysis on the daily chart indicates weak short-term price momentum as the pair is below the nine-day exponential moving average (EMA). In addition, the 14-day Relative Strength Index (RSI) remains below the 50 level, indicating bearish market bias.

On the downside, the Australian dollar may test the two-month low of 0.6419 set on August 1, and if it falls below this level, it may further test the three-month low of 0.6372.

The immediate resistance level appears at the psychological level of 0.6500, which coincides with the 50-day and 9-day moving averages. Breaking through this key resistance area could improve short-to-medium-term price momentum and push the pair to target the monthly high of 0.6568 set on August 14, challenging the nine-month high of 0.6625 recorded on July 24.

(Australian dollar/US dollar daily chart, source: Internet)