- AUD/USD regains positive traction on Monday amid dovish Fed-inspired USD selling bias.
- Bets for a larger Fed rate cut to keep the US bond yields depressed and weigh on the buck.
- Disappointing Chinese data released over the weekend does little to hinder the move up.
- Investors now look forward to the crucial FOMC decision on Wednesday for some impetus.
The AUD/USD pair attracts some dip-buying on the first day of a new week and climbs back closer to a one-week peak, around the 0.6730-0.6735 region touched on Friday. The Australian Dollar (AUD) continues to draw support from the Reserve Bank of Australia's (RBA) hawkish stance. The RBA Governor Michele Bullock reiterated on Thursday that bringing inflation down to the target band of 2-3% remains the central bank's highest priority and it was premature to contemplate near-term rate cuts as inflation remained too high. This, along with the prevalent US Dollar (USD) selling bias, turns out to be a key factor acting as a tailwind for the currency pair.
The softer-than-expected US Consumer Price Index (CPI) and the Producer Price Index (PPI) reports released last week provided further evidence of easing inflationary pressures. This lifted market expectations for a more aggressive policy easing by the Federal Reserve (Fed). According to the CME Group's FedWatch Tool, the current market pricing indicates over a 50% chance that the US central bank will lower borrowing costs by 50-basis points later this week. This keeps the US Treasury bond yields and the USD Index (DXY) near the 2024 low. Apart from this, a generally positive risk tone undermines the safe-haven buck and benefits the risk-sensitive Aussie.
The AUD bulls, meanwhile, seem rather unaffected by a string of poor Chinese data released over the weekend. The National Bureau of Statistics data reported that China's Retail Sales rose by 2.1% in August from a year ago, down from the 2.7% increase in the previous month and missing expectations. Adding to this, Industrial Production growth slowed from 5.1% in July to 4.5% during the reported month. Furthermore, Fixed Asset Investment rose by 3.4% for the January to August period, slower than the market forecast, and the jobless rate unexpectedly climbed to a six-month high. This, however, does little to dent the bullish tone surrounding the China-proxy Aussie.
The aforementioned fundamental backdrop seems tilted in favor of bullish traders and supports prospects for an extension of the recent move-up from the monthly low, around the 0.6620 area touched last week. Investors, however, might refrain from positioning from any further appreciating move and opt to move to the sidelines ahead of the key central bank event risk. The Fed is scheduled to announce its policy decision on Wednesday, which will play a key role in influencing the USD and determining the near-term trajectory for the AUD/USD pair. In the meantime, traders on Monday will take cues from the release of the Empire State Manufacturing Index from the US.
Technical Outlook
From a technical perspective, the recent goodish rebound from the very important 200-day Simple Moving Average (SMA) and a subsequent strength beyond the 0.6700 mark validates the positive outlook for the AUD/USD pair. Moreover, oscillators on the daily chart have just started gaining positive traction and suggest that the path of least resistance for spot prices is to the upside. Hence, some follow-through strength towards the 0.6765-0.6770 intermediate hurdle, en route to the 0.6800 mark and 0.6825 area, or the multi-month peak touched in August, looks like a distinct possibility.
On the flip side, the 0.6700 round figure now seems to protect the immediate downside ahead of the 100-day SMA, currently pegged near the 0.6655-0.6650 region and the 0.6620-0.6615 zone, or the 200-day SMA. A convincing break below the latter will shift the bias in favor of bearish traders and drag the AUD/USD pair below the 0.6570-0.6565 intermediate support, towards challenging the 0.6500 psychological mark.
AUD/USD daily chart
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