The Australian dollar faces headwinds from the RBA potentially pausing rate hikes after softer-than-expected inflation data (3.4% vs. 3.6% forecast) suggests inflation might be peaking. This dovish shift aligns with the global trend of central banks re-evaluating their tightening stances.
Meanwhile, the US dollar finds some support as durable goods orders fall more than anticipated, hinting at potential future weakness. However, markets remain focused on Thursday’s US PCE inflation data, with a stronger-than-expected reading potentially boosting the USD.
Overall, the AUDUSD is caught in a tug-of-war. The RBA’s dovish signals and weaker US data favour the AUD, but the potential for hawkish US inflation data could strengthen the USD.
Technical Analysis:
On the 4-hour chart, the currency pair is currently 0.65078, below key SMAs (20, 50 & 100). The 20-SMA (green line) is currently sloping downwards and trading above the 50-SMA (blue line) and 100-SMA (orange line). This indicates short-term bearish momentum and a possible downtrend. However, the recent flattening of the moving averages suggests weakening bearish momentum and potential indecision in the market.
The RSI is 34.83, recently broke below 50.00 and the downward slope of the RSI and its position below the 50.00 level reinforce the bearish bias. However, the RSI is nearing oversold territory (below 30), which can sometimes indicate a potential reversal if accompanied by other bullish signals.
The price action is nearing the crucial 0.65037 support level. A break below the 0.65037 support level, confirmed by a downward crossover of the 20-SMA below the 50-SMA, would strengthen the bearish bias and suggest a potential downward movement towards 0.64770 and even 0.64427.
Conversely, a bounce off the 0.65037 support level, accompanied by a rise in the RSI and a potential bullish candlestick pattern, would indicate a short-term bullish reversal. This could lead to a break above the 0.65431 resistance, opening the door for a test of 0.65652 and 0.65969.
Summary
The AUDUSD faces conflicting forces. Technically, a break above or below the 0.65037 support level, along with confirmation from the moving averages and RSI, will likely dictate the short-term direction. The next few days, particularly the US PCE inflation data, will be crucial in providing further clarity on the pair’s direction.
Sources: TradingView, Trading Economics, Dow Jones Newswire, Reuters, S&P Global.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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