12/09/24

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The AUD/USD currency pair experienced a second consecutive day of gains, buoyed by positive market sentiment. However, diminished expectations for a more substantial interest rate cut by the Federal Reserve may place a cap on the pair’s upward momentum. Market participants are awaiting the upcoming U.S. Producer Price Index (PPI) report, which is anticipated to provide short-term direction.

On Thursday, AUD/USD continued its upward trajectory after a rebound from around the 200-day Simple Moving Average (SMA), situated near the 0.6620 level, marking a nearly four-week low. The pair reached a new weekly high during the early European trading session, driven by a favorable atmosphere in the markets that generally benefits the risk-sensitive Australian dollar. Investor confidence was bolstered by the recent U.S. Consumer Price Index (CPI) report, which strengthened expectations for an imminent easing cycle from the Federal Reserve.

The U.S. Bureau of Labor Statistics revealed a 0.2% increase in the headline CPI for August, with the year-over-year rate slowing from 2.9% to 2.5%, the lowest rise since February 2021. Additionally, a weaker Producer Price Index from Japan diminished hawkish expectations from the Bank of Japan, further encouraging a preference for riskier assets. Nevertheless, the core CPI, excluding food and energy, rose by 0.3% for the month and held steady at 3.2% annually, in line with expectations. This persistence in inflation is likely to temper hopes for a significant rate cut by the Federal Reserve.

Currently, markets highlight an 87% likelihood of a 25 basis point cut at the Federal Open Market Committee meeting on September 17-18, an increase from 71% prior to the CPI data release. This has led to a modest rise in US Treasury yields, pushing the US dollar closer to its monthly highs and potentially limiting any substantial gains for AUD/USD amid ongoing concerns about an economic slowdown in China.

From a technical standpoint, the 0.6700 level, aligning with critical Fibonacci retracement and moving averages on the 4-hour chart, serves as a key resistance. A sustained breakthrough here could pave the way for further appreciation, targeting levels between 0.6725 and 0.6740. Conversely, the mid-0.6600 range, anchored by the 100-day SMA, may provide immediate support, with a decisive drop below these averages potentially opening the path for additional bearish momentum towards the 0.6500 psychological support level.