AUD/USD Forex Technical Analysis – Supported by Weaker Greenback Amid Drop in US Consumer, Producer Inflation

The Australian Dollar spiked higher for a second session on Thursday as the demand for riskier assets improved on receding expectations for a larger rate hike from the U.S. Federal Reserve in the wake of softer-than-expected consumer inflation data on Wednesday and lower-than-expected producer inflation today.

On Thursday, the AUD/USD settled at .7106, up 0.0024 or +0.34%. The Invesco CurrencyShares Australian Dollar Trust ETF (FXA) finished at $70.31, up $0.22 or +0.31%.

Wednesday’s drop in the CPI and Thursday’s dip in the PPI raised bets in futures markets that the Fed would hike rates by 50 basis points in September instead of 75 basis points as was expected earlier in the week. However, Fed policymakers still insist they will tighten monetary policy until inflation pressures fully abate. If this notion gains traction then the Aussie’s gains could be capped.

In other news, expectations of a less-hawkish Fed in September in turn led investors to pare back the odds of more aggressive tightening in Australia, with markets now pricing in just at 38.8% chance of a half point hike from the Reserve Bank of Australia (RBA) next month.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through .7137 will signal a resumption of the uptrend. A move through .6870 will change the main trend to down.

The intermediate range is .7283 to .6682. The market closed on the strong side of its retracement zone at .7053 to .6982, making it support.

Daily Swing Chart Technical Forecast

Trader reaction to .7106 is likely to determine the direction of the AUD/USD early Friday.

Bullish Scenario

A sustained move over .7106 will indicate the presence of buyers. Taking out .7137 will indicate the buying is getting stronger. This could trigger an acceleration to the upside or a near-term rally into the June 3 main top at .7283.

Bearish Scenario

A sustained move under .7106 will signal the presence of sellers. If this creates enough downside momentum then look for a pullback into the Fibonacci level at .7053. Since the main trend is up, look for buyers on the first test of this level. If it fails then look for the selling to possibly extend into the 50% level at .6982.