AUD/USD extends daily correction, looks to close below 0.7150

• AUD/USD erases large portion of weekly gains on Friday.
• Month-end flows help US Dollar Index gain traction.
• Personal Spending in US increased more than expected in July.

After climbing to its highest level in nearly 18 months at 0.7228 on Friday, the AUD/USD pair staged a deep correction and was last seen trading at 0.7149, losing 0.6% on the day. Despite this drop, the pair remains on track to post weekly gains for the sixth straight week and is up 3.5% in July. 

USD gathers strength in the second half of the day

Earlier in the day, the US Bureau of Economic Analysis reported that Personal Spending in the US increased by 5.6% on a monthly basis in July. However, Personal Income declined by 1.1% during that period and didn’t allow the greenback to capitalize on the data. Meanwhile, the annual core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred gauge of inflation, arrived at 0.9%.

Although the US Dollar Index (DXY) stayed relatively quiet around 93.00 after this data, it received a boost from month-end flows toward the London fix. At the moment, the DXY is up 0.52% on a daily basis at 93.45.

Next week, the Reserve Bank of Australia will hold its monetary policy meeting and release its statement alongside the rate decision at 0430 GMT on Tuesday. Previewing this event, “the target cash rate should remain at 0.25% given the Minutes of the July meeting stated there is “no need to adjust the package of policy measures in Australia in the current environment.”,” TD Securities analysts said.

Technical levels to watch for