AUD/USD Consolidates as Investors Eye Fed Rate Cut Timing
The AUD/USD currency pair is continuing to consolidate after Friday’s mixed data left the chances of a March rate cut by the Federal Reserve above 50%. This has kept yields on the 10-year debt steady at around 4%. Investors will be closely watching key data later in the week as speculation continues regarding the timing of the first rate cut by the Fed. Inflation data from both the US and China will also be released, making the AUD/USD a key currency pair to watch and trade this week. The return of risk appetite, as seen by Monday’s rally on Wall Street, is good news for commodity dollars like the Australian dollar.
Key Inflation Data from US and China Awaited
The economic calendar this week will include CPI data from Australia on Wednesday, while China’s inflation figures will be released on Friday. Although Australia’s CPI came out stronger than expected at 2%, it did not make a significant difference in the AUD’s direction as the currency’s focus is more global right now, especially on inflation data. Key data highlights for the week relevant to the AUD/USD pair include the US Core CPI and CPI figures, as well as the US Unemployment Claims report.
US Dollar Traders Focus on CPI Data
The US dollar index ended the first week of the year higher as investors reduced the odds of a rate cut by the Federal Reserve in March. The dollar was somewhat firmer against most G10 currencies on Monday morning, before closing lower. It started Tuesday’s session in a similar fashion, so it remains to be seen if it will again drift lower once US investors enter the market. US yields, which dipped lower on Monday after strong resistance from the 4.05-4.10% area, were slightly firmer on Tuesday. Friday’s conflicting data from the US created uncertainty in the markets, with the employment component of the ISM services PMI showing a big drop into contraction territory.
Australian and Chinese Inflation Data Set to Impact AUD/USD
The AUD/USD currency pair has started January on a lower note following two consecutive months finishing in positive territory. However, the bullish trend is still intact as the price has not broken any major lows yet. The pair was testing key support around the 0.6700 area at the time of writing, where prior resistance met with the bullish trend line going back to October. Traders will be closely watching for a potential bullish reversal signal, which could indicate that the pair has hit a bottom and the bullish trend is about to resume. If this happens, the next upside targets could be the December high at 0.6871 or the June peak at 0.6900.
Technical Analysis: AUD/USD Testing Key Support
The AUD/USD has been consolidating and testing key support around the 0.6700 area. The pair posted its first positive close in 6 trading sessions on Friday, but it was lower on Monday and Tuesday. However, a potential recovery later in the day could signal a bullish reversal and the resumption of the bullish trend. If this happens, the next upside objectives for the pair could be the December high at 0.6871 or the June peak at 0.6900. On the other hand, if a bullish reversal fails to materialize, the pair may dip lower to test the next support level at 0.6610 or even the 200-day moving average at 0.6585.
Analyst comment
Positive news: The return of risk appetite is good news for commodity dollars like the Australian dollar.
Analyst prediction: The AUD/USD currency pair could potentially see a bullish reversal and resume the bullish trend, with the next upside targets at 0.6871 and 0.6900. However, if a bullish reversal fails, the pair may dip lower to test the next support level at 0.6610 or the 200-day moving average at 0.6585.
