The Australian Dollar (AUD) faces a pivotal week, with its near-term direction hinging on the highly anticipated US Consumer Price Index (CPI) data due later today. Despite mixed domestic data, the AUDUSD pair remains caught in a technical tug-of-war, awaiting the crucial inflation update from the US.
The January CPI data, expected at 0.2% monthly and 2.9% year-over-year, will be the key driver of market sentiment. A lower-than-expected reading could reignite rate cut expectations in the US, potentially boosting the AUD as a risk-sensitive currency. Conversely, a higher-than-expected figure could strengthen the USD and pressure the AUDUSD pair.
Australian consumer confidence jumped to a 20-month high in February, suggesting optimism about a potential end to the tightening cycle by the Reserve Bank of Australia (RBA). However, business sentiment remained subdued, indicating ongoing concerns about economic conditions. This mixed data set leaves the AUDUSD direction unclear ahead of the US CPI release.
Lastly, risk appetite remains cautious as investors await the US inflation data. Recent hawkish commentary from Federal Reserve officials has tempered expectations for aggressive rate cuts, potentially limiting the AUD’s upside potential.
Technical
The 4-hour chart shows that the AUDUSD pair currently trades at 0.65200, hovering around key Simple Moving Averages (SMAs). It sits below the 50-SMA (blue line) and 100-SMA (orange line) but finds support at the 20-SMA (green line). The downward-sloping 100-SMA trades above the 20-SMA and 50-SMA, indicating a potential downtrend. However, the recent flattening of the 20-SMA suggests a possible pause in the downtrend.
With the price action likely to be volatile ahead of the US CPI report, the previous day’s high of 0.65431 and low of 0.65037 could act as key levels to determine the pair’s short-term trajectory. A break above the 0.65431 level would likely bring the 0.65652 and 0.65969 resistance levels into play.
Conversely, short-term trading opportunities could arise towards the initial support at 0.64805, should the price action sustain a break below the previous day’s low. A break below initial support would likely bring the 0.64522 support level into play in the short term.
Summary
The AUDUSD pair faces a volatile week as investors await the US CPI data. A dovish shift from the Fed, coupled with weaker-than-expected inflation, could trigger a rally towards the 0.65652 level. However, a hawkish stance and stronger inflation data could lead to a pullback towards the 0.64522 support level.
Sources: TradingView, Trading Economics, National Australia Bank, Westpac Banking Corporation, Melbourne Institute, Dow Jones Newswire, CNBC, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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