After yesterday’s weaker US PMI data, the Fed’s outlook remains more interesting. The dollar fell as traders may have to consider at least one rate cut for the year. But in the case of the Aussie, it does not appear that rate cuts are on the cards this year. This is especially true since inflation data remains rather fragile, as we see here.
The truncated average reading is the most crucial and it amounts to 4.0%. Certainly, this is a drop compared to the previous 4.2%, but it remains insufficient to convince of a significant disinflationary trend. At least, not a measure that would force the RBA to act in the near future.
AUD/USD saw a decent rebound today, with the pair touching a high of 0.6530 earlier. This sees it come up against a test of its 200-day moving average (blue line):
AUD/USD daily chart
And that’s holding back gains for now, alongside the 61.8 Fibonacci retracement level (red) at around 0.6536. After which, the 100-day moving average (red line) offers the next key resistance level, but this is currently only visible at 0.6585.
So, what’s next for the couple?
What was previously a trading divergence between the dollar and the rest of the major currency bloc has now changed. This particular divergence factor has resolved itself, with the RBA also perhaps one of the last – if not the last – central banks to cut rates. And that’s a boon for the Aussie, especially now that it coincides with a pickup in risk.
Now it will be about what the next round of US data will have to offer, particularly the inflation figures. And we won’t have to wait too long since the PCE Price Index is due on Friday this week.
This could provide a key trigger point for traders to work with ahead of the weekend.
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