Bearish View
- Sell the AUD/USD pair and set a take-profit at 0.6640.
- Add a stop-loss at 0.6800.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 0.6720 and a take-profit at 0.6800.
- Add a stop-loss at 0.6650.
The AUD/USD price reacted mildly to the encouraging Australian consumer inflation numbers as traders focused on the reading from the United States. The pair held steady at the crucial support at 0.6700 as the dollar index stalled.
US Inflation Data Ahead
Australia published encouraging Consumer Price Index (CPI) data on Wednesday. According to the ABS, the headline CPI retreated from 4.9% in October to 4.30% in November. This figure was better than the median estimate of 4.40%. Excluding the volatile items, inflation eased to 4.6% from 5.3%.
Still, these numbers are higher than the RBA’s target of 2.0%, meaning that the bank is not expected to start cutting them any time soon. In a note, analysts at NAB predicted that the central bank could decide to hike rates by 0.25% instead. The bond market, however, believes that the era of rate hikes is over.
The AUD/USD pair also reacted to the ongoing iron ore sell-off. The price continued dropping, falling by over 3%, which is a sign that China’s economy was not doing well. Iron ore is a major Australian export.
The next important catalyst for the upcoming US inflation numbers, which will set the tone for the next Fed actions. Economists expect the data to show that the headline CPI rose from 0.1% in November to 0.2% in December. On a YoY basis, the CPI is expected to have risen to 3.2%.
The core CPI, which excludes the volatile food and energy products, is expected to retreat from 4.0% to 3.8%. These numbers will come a few days after the US published strong jobs numbers. According to the BLS, the unemployment rate remained at 3.7% as the economy added over 200k jobs.
A lower-than-expected inflation number will make a 0.25% rate cut in March more certain. On the other hand, if the CPI figures are higher than expected, it means that the first cut will likely be in June.
AUD/USD Technical Analysis
The AUD/USD pair was flat ahead of the upcoming US inflation numbers. On the 4H chart, Bollinger Bands have narrowed recently, pointing to low volatility. The pair has also retreated below the 23.6% Fibonacci Retracement point.
Meanwhile, the two lines of the MACD have pointed upwards while the Relative Strength Index (RSI) has formed an ascending channel. Therefore, the pair will likely resume the downtrend as sellers target last week’s swing at 0.6640.
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