The AUD/USD currency pair has dipped to around 0.7160 in the early hours of Monday’s Asian session. This decline comes as recent US inflation figures are better than anticipated, giving some backing to the US Dollar (USD) against its Australian counterpart (AUD). Investors are keenly awaiting the US Federal Reserve’s interest rate announcement set for Wednesday.
According to the Bureau of Labor Statistics, the US Consumer Price Index (CPI) climbed 0.4% month-over-month in August, yielding a yearly increase of 3.4%, which aligns with market expectations reported last Friday.
The core CPI, which excludes the more fluctuating food and energy costs, saw a monthly rise of 0.3%, surpassing the anticipated 0.2%, and a yearly increase of 2.4%, down from 2.5% in July.
This inflation data came on the heels of positive figures from various segments of the Producer Price Index (PPI) released Thursday, which have sparked speculation about a potential Fed interest rate hike this coming week, thus boosting the dollar.
The financial markets initially assessed an 86.2% probability of a quarter-point rate increase at the Fed’s September meeting, up from 72% before the CPI report, as per CME’s FedWatch tool.
A somewhat assertive stance from the Reserve Bank of Australia (RBA) could potentially curb the Aussie’s losses. RBA Assistant Governor Sarah Hunter noted on Tuesday that if inflation continues to be more persistent than anticipated, there might be another necessity to raise interest rates, keeping the possibility of an increase alive for the next meeting in September.
Aussie slips as UOB spots rising downside risks in AUD/USD
UOB Group’s strategists mention that their outlook on the AUD/USD pair remains consistent, despite a marked decrease in prices. They’ve pointed out that since last Friday when the pair was at 0.7205, they believed the Aussie “could edge higher, but any advance is likely to stay within a 0.7160/0.7240 range.” After the pair “edged higher for several days and even hit a peak of 0.7238 two days ago,” UOB observed that the AUD “plummeted, closing 0.83% lower at 0.7157 yesterday.”
The bank emphasizes that this “swift increase in downward momentum suggests that the AUD could slide toward 0.7120,” indicating a shift to a more pessimistic near-term outlook. However, UOB also warns that if the AUD breaks above the “0.7210 (identified as a ‘strong resistance’ level), it would imply the possibility of trading within a range,” keeping the broader 0.7160–0.7240 consolidation scenario alive for the next few weeks.
Technical Analysis: AUD/USD maintains a bullish outlook in the short term
According to the daily chart, the AUD/USD pair is staying above the 100-day moving average (MA) and the lower Bollinger Band, suggesting a generally positive short-term outlook, while the price is nearing the area just below the middle Bollinger band. The Relative Strength Index (14) at 54 indicates a slightly favorable position for buyers without overextended momentum.
On the upside, immediate resistance is observed at the middle Bollinger band around 0.7170, with the upper band near 0.7235 potentially stalling further upward attempts. On the downside, initial support lies at the lower Bollinger band near 0.7100, before the 100-day MA at 0.7080, breaking below which would invalidate the bullish trend and lead to more substantial declines.
