The Australian Dollar (AUD) strengthened on Friday, although the potential for a stronger US Dollar (USD)—driven by lower odds of aggressive interest rate cuts from the US Federal Reserve following recent inflation data—may limit the pair’s upside.
With no significant economic data from Australia scheduled for release, the dynamics of USD pricing will predominantly influence the AUD/USD exchange rate. Investors are particularly focused on the upcoming US Producer Price Index (PPI), expected to reveal a 1.6% year-over-year increase in September, while the core PPI is anticipated to rise by 2.7% year-over-year. A softer-than-expected report could weaken the USD and provide support for the AUD/USD pair. Additionally, the preliminary Michigan Consumer Sentiment Index will be released later today.
Recent minutes from the Reserve Bank of Australia‘s (RBA) September meeting indicated that board members did not foresee imminent rate cuts, opting instead to remain flexible while monitoring economic performance in the second half of the year.
US Consumer Price Index (CPI) data released on Thursday showed a year-over-year increase of 2.4% in September, slightly above the previous month’s 2.5% and surpassing the consensus estimate of 2.3%. The core CPI, which excludes food and energy, rose 3.3% year-over-year, exceeding both forecasts and the prior reading of 3.2%.
US Initial Jobless Claims for the week ending October 4 climbed to 258,000, up from 225,000 the previous week and surpassing the consensus estimate of 230,000.
New York Fed President John Williams expressed expectations for future rate cuts as inflationary pressures moderate alongside a robust economy. Meanwhile, Chicago Fed President Austan Goolsbee noted the likelihood of several rate reductions over the next 12 to 18 months, citing that inflation is nearing the Fed’s 2% target and the economy is approaching full employment. Conversely, Atlanta Fed President Raphael Bostic indicated he might consider pausing rate cuts in November if economic data does not align with the Fed’s targets.
Technical Analysis: Bullish Outlook for Australian Dollar
The AUD/USD pair continues to show positive momentum, trading above the lower boundary of an ascending trend channel and the key 100-day Exponential Moving Average (EMA). However, the potential for further downside exists, as the 14-day Relative Strength Index (RSI) hovers below the midline at approximately 44.70.
The first resistance level is identified near the September 6 high at 0.6767. If momentum persists, gains could extend to 0.6823, the August 29 high, with further buying pressure possibly driving the exchange rate to 0.6942, the high from September 30.
On the downside, crucial support is located at 0.6700, which aligns with the trend channel’s lower limit, the 100-day EMA, and a psychological level. A break below this point could lead to further declines toward 0.6622, the low recorded on September 11.
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