Australian Dollar maintains position ahead of Michigan Consumer Sentiment Index – FXStreet

• The AUD/USD pair is rising as US data strengthens the likelihood of an aggressive Fed rate cut next week.
• The U.S. producer price index rose more than expected due to rising services costs.
• The Fed is expected to cut interest rates by 25 basis points at its September meeting.

AUD/USD rose for a third consecutive session on Friday as US economic data increased the likelihood that the Federal Reserve will cut interest rates by 50 basis points next week.

The U.S. Department of Labor reported that initial jobless claims rose as expected last week, surpassing the previous week's figure. Additionally, U.S. manufacturing inflation rose more than expected due to rising service costs. Investors' attention is now shifting to the Michigan Consumer Sentiment Index, due for release on Friday.

According to the CME FedWatch tool, the market fully expects the Federal Reserve to cut interest rates by at least 25 basis points (bps) at its September meeting, with the likelihood of a 50 bps cut jumping to 41.0% from 14.0% the previous day.

The Australian dollar (AUD) was supported after Reserve Bank of Australia (RBA) Governor Michelle Block maintained her hawkish outlook last week, saying inflation remains too high and it is too early to consider cutting interest rates.

Daily Digest Market Trends: Australian dollar trending higher on improving risk sentiment

• The U.S. Producer Price Index (PPI) rose 0.2% month-on-month in August, beating the expected 0.1% increase and the previous 0.0%, while core PPI rose 0.3% month-on-month, beating the expected 0.2% increase and July's 0.2% decline.
• Initial claims for unemployment benefits in the United States rose slightly in the week ending September 6th, increasing to an expected 230,000 from the previous 228,000.
• Former Reserve Bank of Australia Governor Bernie Fraser has criticised the current RBA board for placing too much emphasis on inflation at the expense of the labour market. Fraser warned of a “recession risk” that could have serious implications for employment and suggested the board should cut the cash rate.
• Australian consumer inflation expectations eased to 4.4% in September, down slightly from a four-month high of 4.5% in August. The decline highlights the central bank's efforts to balance lowering inflation within a reasonable timeframe with preserving gains in the labour market.
• The U.S. Consumer Price Index fell 2.5% year-on-year in August from 2.9% previously. The index was below the 2.6% forecast. Meanwhile, the headline CPI was up 0.2% month-on-month.
• U.S. core CPI, excluding food and energy, was stable at 3.2% year-on-year. On a monthly basis, core CPI rose to 0.3% from 0.2% in the previous month.
• According to a CNN poll, the first US presidential debate between former President Donald Trump and Democratic candidate Kamala Harris in Pennsylvania was won by Harris, who began the debate with a critical focus on the economy, inflation and economic policy.
• Sarah Hunter, deputy governor of the Reserve Bank of Australia (RBA) for economics, said on Wednesday that high interest rates are suppressing demand, which is expected to lead to a mild recession. Hunter also noted that the labour market remains tight compared to full employment levels, and job growth is expected to continue, albeit slower than population growth, according to Reuters.

Technical reasons why: The Australian Dollar has risen above the 9-days EMA at 0.6700

On Friday, the AUD/USD pair is trading around 0.6730. Technical analysis on the daily chart shows that the pair has broken out of the descending channel, indicating a weakening bearish bias. Moreover, the 14-day Relative Strength Index (RSI) is above the 50 level, suggesting a reversal of momentum from a bearish to a bullish trend.

On the upside, the AUD/USD pair may explore the area around the seven-month high of 0.6798, which coincides with the psychological level of 0.6800.

On the downside, the AUD/USD pair may find immediate support near the upper limit of the descending channel around 0.6720, followed by the 9-day exponential moving average (EMA) at the 0.6707 level.

A return to the descending channel would strengthen the bearish bias, forcing the pair to move through the area near the lower limit of the descending channel around 0.6600 and then the throw-back support zone around 0.6575.

AUD/USD: Daily Chart