AUD/USD: Eyes 0.6830 Resistance as Strong Australian CPI Supports Rally

The AUD/USD currency pair maintained its upward trajectory during the European trading session, trading around the 0.6821 level and reaching an intra-day high of 0.6825.

This momentum was driven by a weakening US Dollar, which lost ground as the Federal Reserve hinted at potential rate cuts due to a softer economic outlook.

28/08/24 – Eyes on AUD CPI y/y (3.5%), USD Crude Oil Inventories. Speeches FOMC Members Waller and Bostic. pic.twitter.com/tPIql1GUgc

— Chartist (@diamondsforex) August 28, 2024

Additionally, hotter-than-expected Australian CPI data bolstered the Aussie, as it dampened expectations for a near-term rate cut by the Reserve Bank of Australia (RBA).

• Australian CPI Impact:
  Australia’s Consumer Price Index (CPI) eased to 3.5% in July, down from 3.8% in June. This figure, although matching forecasts, was stronger than expected, leading investors to reassess the likelihood of an RBA rate cut. The unexpected CPI reading provided support to the AUD/USD, with the pair rising steadily throughout the session.
• Economic Headwinds:
  Despite the strong inflation data, Australia’s private capital spending fell sharply by 2.2% in Q2, a significant decline from the 1.0% growth recorded in the previous quarter. This contraction, particularly in buildings, structures, and machinery, poses a downside risk to the Australian economy and could weigh on the AUD in the near term.

Fed Signals and Upcoming US Economic Data Weigh on USD

On the US side, the Federal Reserve has signalled a potential shift toward lower interest rates, contributing to the US Dollar’s decline. Fed Chair Jerome Powell’s recent comments from Jackson Hole indicated that economic challenges, particularly in the labour market, might prompt policy adjustments.

USD, SPY, Rates are showing ST trend exhaustion signals. Not sure rates go higher meaningfully given slowing economy & recent correlation with SPY. But USD could be bullish in short term.

— Kyubeom Han (@allsgut) August 29, 2024

Investors are now keenly awaiting the upcoming US Nonfarm Payrolls report and GDP data, which could further influence the Fed’s stance.

• Impact on USD:
  If the Nonfarm Payrolls report shows continued weakness or if GDP figures disappoint, the USD could face additional downward pressure. On the other hand, a stronger-than-expected core Personal Consumption Expenditures (PCE) Price Index could push the Fed to maintain higher interest rates for longer, potentially offering support to the USD.
• Market Reaction:
  The AUD/USD pair is likely to remain sensitive to these data releases. A weaker USD could further strengthen the Aussie, while any surprises in the data could trigger volatility.

AUD/USD Technical Outlook: Bullish Momentum with Key Resistance Levels

The AUD/USD pair is currently trading at 0.68066, reflecting a 0.26% increase as the Australian Dollar gains ground. The pair exhibits a bullish bias, trading above the 50-day Exponential Moving Average (EMA) at 0.6780. This EMA serves as a key support level, suggesting that buyers are in control.

• Resistance Levels:
  The daily pivot point is set at 0.6831, aligning with immediate resistance. A successful break above this level could pave the way for further gains, targeting resistance at 0.6849 and 0.6869. The Relative Strength Index (RSI) stands at 60, indicating strong momentum with room to grow before hitting overbought conditions.
• Support Levels:
  On the downside, immediate support is located at 0.6773, just below the 50-day EMA. Should the pair drop below this level, additional support can be found at 0.6752 and 0.6728. A break below these levels could shift momentum to bearish, potentially leading to further declines.

For traders, an entry above 0.67955 appears favourable, with a take-profit target at 0.68312 and a stop-loss at 0.67732 to manage risk. While the short-term outlook remains bullish, attention should be paid to key resistance levels and the RSI for any signs of a reversal.

ABOUT THE AUTHOR See More

Arslan Butt

Index & Commodity Analyst

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics.His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker.His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.

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