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AUD/USD Outlook Hinges on Australia Consumer Price Index (CPI)

AUD/USD Outlook Hinges on Australia Consumer Price Index (CPI)

David Song, Strategist

Australian Dollar Talking Points

AUD/USD may face range-bound conditions over the remainder of the month amid the failed attempt to break the July-low (0.7311), but fresh data prints coming out Australia may shift the near-term outlook for the exchange rate as the headline reading for inflation is expected to pick up in the second-quarter of 2018.

Image of daily change for major currencies

AUD/USD Outlook Hinges on Australia Consumer Price Index (CPI)

Image of daily change for AUDUSD

Updates to the Consumer Price Index (CPI) may boost the appeal of the Australian dollar as the headline reading is expected to approach the Reserve Bank of Australia’s (RBA) inflation target of 2-3%, and signs of heightening price pressures may put pressure on the central bank to lift the official cash rate (OCR) off of the record-low as ‘recent data on the Australian economy continue to be consistent with the Bank's central forecast for GDP growth to average a bit above 3 per cent in 2018 and 2019.

However, a below-forecast CPI print paired with the threat of a trade war between the U.S. and China, Australia’s largest trading partner, may keep the RBA on the sidelines as ‘one uncertainty regarding the global outlook stems from the direction of international trade policy in the United States,’ and Governor Philip Lowe & Co. may merely attempt to buy more time at the next meeting on August 7 as ‘household income has been growing slowly and debt levels are high.

With that said, the RBA’s wait-and-see approach for monetary policy may continue to instill a long-term bearish outlook for AUD/USD especially as the Federal Open Market Committee (FOMC) appears to be on course to deliver four rate-hikes in 2018, but the monthly remains in focus for the days ahead as the failed attempt to test the July-low (0.7311) raises the risk for a move back towards the top of the current range.

AUD/USD Daily Chart

Image of AUDUSD daily chart
  • Keep in mind, price & the Relative Strength Index (RSI) continues to track the downward trends from earlier this year, with the near-term outlook for AUD/USD still capped by the Fibonacci overlap around 0.7500 (50% retracement) to 0.7530 (38.2% expansion).
  • However, the failed attempt to break/close below the 0.7320 (50% expansion) to 0.7340 (61.8% retracement) region may continue to foster range-bound conditions as AUD/USD preserves the monthly opening range.
  • Need a break/close below the stated region to open up the downside targets, with the next region of interest coming in around 0.7180 (61.8% retracement) to 0.7230 (61.8% expansion).

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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