AUD to USD Forecast: Bulls Eye $0.6850 on Sticky Inflation Rally

Highlights

• It is a busy morning for the AUD/USD, with inflation numbers from Australia in focus.
• While inflation will influence sentiment toward RBA monetary policy, the looming Fed interest rate decision will need consideration.
• The near-term technical indicators turned bullish, signaling a return to $0.6850.

On Tuesday, the AUD/USD gained 0.78% to end the day at $0.67917. Politburo pledges to support the ailing Chinese economy delivered commodity price support, driving demand for the commodity currencies.

This morning, Australian inflation numbers will move the dial. After the better-than-expected employment numbers, sticky inflation could force the RBA to deliver another rate hike to curb spending and tame inflation. Economists forecast the annual inflation rate to soften from 5.6% to 5.4% in Q2 2023.

Higher interest rates would reduce household disposable incomes and curb spending. A pullback in spending would lead to softer demand-driven inflationary pressures. Higher borrowing costs would also impact business investment and employment, which could force consumers to tighten their purse strings.

The US Session

US housing sector data should have a muted impact on the AUD/USD, with the Fed interest rate decision and press conference in focus.

A 25-basis point interest rate hike would leave the FOMC Statement and press conference to move the dial. With the softer US CPI Report wiping out bets on a September rate hike, a hawkish 25-basis point interest rate hike would catch the markets by surprise.

AUD/USD Price Action

Daily Chart

The Daily Chart showed the AUD/USD breakout from the $0.6755 – $0.6729 support band on Tuesday to target $0.68. Politburo pledges provided bullish momentum ahead of a testy Wednesday for the markets.

Notably, the AUD/USD broke through the 200-day EMA ($0.67519) while holding above the 50-day EMA ($0.67236), sending bullish near and longer-term price signals.

After the bullish Tuesday session, the 50-day EMA narrowed to the 200-day EMA, supporting a more bullish near-term outlook.

Looking at the 14-Daily RSI, the 55.26 reading signals a bullish trend and supports a run at $0.6850. However, an AUD/USD fall through the upper level of the $0.6755 – $0.6729 support band and the 200-day EMA ($0.67519) would bring the 50-day EMA ($0.67236) into play.

4-Hourly Chart

Looking at the 4-Hourly Chart, the AUD/USD hovers above the $0.6755 – $0.6729 support band. The AUD/USD sits above the 50-day ($0.67673) and 200-day ($0.67306) EMAs, sending bullish near and longer-term price signals.

Significantly, the 50-day EMA pulled away from the 200-day EMA, supporting a return to $0.6850. However, a fall through the 50-day EMA ($0.67673) would bring the $0.6729 – $0.6755 support band and the 200-day EMA ($0.67306) into play.

Looking at the RSI indicator, the 14-4H RSI reading of 57.83 indicates bullish momentum, with buying pressure outweighing selling pressure. The RSI is aligned with the 50-day EMA, supporting a return to $0.6850.