The Australian Dollar (AUD) has gained momentum, trading near the key resistance level of 0.6500 against the US Dollar (USD), as market sentiment improves and the USD faces persistent selling pressure. The pair is preparing for a critical Monthly Consumer Price Index (CPI) release, which could add further momentum if inflation data continues to cool.
AUD/USD Technical Overview: Targeting Key Resistance Levels
- Current Price: 0.6488
- Immediate Resistance: 0.6500, followed by the July 2025 peak at 0.6625 and the November 2024 high of 0.6687.
- Key Support Levels: 0.6414 (August 21 low), 200-day Simple Moving Average (SMA) at 0.6385, and June 23 low at 0.6372.
- Momentum Indicators: The Relative Strength Index (RSI) has crossed above 50, indicating potential for further upside movement, while the Average Directional Index (ADX) near 16 suggests a weak trend, leaving room for price exploration within the current range.
Fundamental Outlook: A Strengthening Aussie Amid US Dollar Weakness
The AUD/USD has been buoyed by a softening US Dollar and improved global risk sentiment. The pair is now testing the key 0.6500 mark after recovering from a dip earlier in the week. Here’s a deeper look into the fundamentals driving the move:
- Inflation: Gradual Cooling in Australia
Australia’s inflation data indicates price pressures are easing slowly. The Q2 CPI showed a quarterly increase of 0.7% and a year-on-year rise of 2.1%. However, June’s monthly CPI slipped to 1.9%. Markets will be closely watching the July CPI release for new insights. A hot CPI print could prompt speculation of further tightening by the Reserve Bank of Australia (RBA), boosting the Aussie. - Stronger Economic Data in Australia
Recent economic indicators suggest resilience in the Australian economy. Early August PMIs showed the manufacturing sector expanding to 52.9 and services improving to 55.1. Retail sales increased by 1.2% in June, and trade data showed a sharp increase in the trade surplus, widening to A$5.365 billion from A$1.604 billion. - The Labor Market Remains Tight
Australia’s unemployment rate dropped to 4.2% in July, with 24.5K jobs added. Despite the tight labor market, inflation remains above target, maintaining pressure on the RBA to manage price stability while supporting economic growth.
RBA and Global Economic Risks: What to Expect
- RBA’s Cautious Stance
The Reserve Bank of Australia (RBA) cut its interest rate by 25 basis points to 3.60% in August, but the central bank is expected to adopt a cautious approach in the coming months. The RBA’s growth outlook for 2025 was revised lower, but Governor Michele Bullock emphasized that any future rate cuts would be data-dependent. Markets are pricing in another 25 basis-point cut by November 5, with some suggesting a faster pace if labor market conditions tighten further. - China’s Economic Impact
China continues to play a pivotal role in shaping Australia’s economic outlook. While China’s GDP grew by 5.2% year-on-year in Q2, its manufacturing PMI dipped below 50, indicating contraction. The People’s Bank of China (PBoC) has kept key interest rates unchanged, and weak retail sales continue to pose challenges for global growth.
Market Positioning: Speculators Betting Against the Aussie
Despite recent positive economic data, speculative positioning on the Aussie has been increasingly bearish. Net short positions on the Australian Dollar reached their highest level since April 2024, according to the latest CFTC report, as traders remain cautious on the pair’s outlook amid the global uncertainties.
Looking Ahead: Key Catalyst – Australian CPI
The upcoming Australian CPI data is expected to play a significant role in determining the next moves for the AUD/USD. A hotter-than-expected inflation print could prompt the RBA to reconsider further cuts, leading to a stronger Aussie. Conversely, softer inflation could reinforce the case for additional rate cuts, putting pressure on the Aussie Dollar.
As the market looks to break out of the 0.6400-0.6600 range, expect significant volatility driven by these key data points and central bank decisions.
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