Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6620.
- Add a stop-loss at 0.6420.
- Timeline: 1-2 days.
Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6420.
- Add a stop-loss at 0.6620.
The AUD/USD exchange rate moved upwards as the focus among investors remained on the Reserve Bank of Australia (RBA) interest rate decision and the latest US inflation data that fueled Federal Reserve interest rate cuts hopes. It was trading at 0.6350, up from this month's low of 0.6420.
US Inflation Data and Fed Cut Hopes
The AUD/USD pair has jumped after the Reserve Bank of Australia decided to deliver its third interest rate cut of the cycle as it warned that economic growth will be subdued. The bank also attributed the cut to the recent economic numbers, which showed that the headline Consumer Price Index (CPI) moved closer to the target rate of 2.0%.
Analysts believe that inflation will continue moving downwards as wage pressures remain. A report released on Wednesday showed that the wage price index moved from 0.9% in Q1 to 0.8% in Q2. This quarterly figure translated to an annualized slowdown of 3.3%.
Historically, slow wage growth often leads to low consumer inflation. Australia will publish the latest jobs numbers on Thursday this week.
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The AUD/USD exchange rate continued rising after the US published the latest consumer price index data on Tuesday. These numbers showed that, while the headline inflation remained unchanged at 2.7%, the closely watched core consumer figure jumped from 2.9% to 3.1%, which was higher than the median estimate of 3.1%.
Still, analysts predict that the Federal Reserve will go ahead and cut interest rates in the coming meeting in September as concerns about the labor market outweigh the fears of inflation.
The next important catalyst for the AUD/USD pair will be the statements by top officials like Tom Barkin and Austan Goolsbee, who will share their thoughts on the economy and Fed cut expectations.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD exchange rate has remained in the ascending channel where it has been in the past few months. What was notable is that the pair moved above the 50-day and 100-day Exponential Moving Averages (EMA) and is forming a small bullish flag pattern.
The pair is also flirting with the important resistance at 0.6550, the 61.8% Fibonacci Retracement level, where most reversals happen. Therefore, the pair will likely continue rising as bulls target the upper side of the channel at 0.6620. A drop below lower side of the channel at 0.6460 will invalidate the bullish outlook.
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