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AUD/USD Faces a Test from CPI Data, FOMC Decision

The AUD/USD is trading lower this Tuesday after touching off 4-week highs at 0.69831 ahead of the July inflation data. The market expectation is for the consumer price index in Australia to drop from 2.1% to 1.9% n a quarterly basis, with the Trimmed Mean CPI (q/q) to have increased from 1.4% to 1.5%.

According to Joseph Capurso, who heads International Economics in Australia’s Commonwealth Bank, a stronger-than-expected Trimmed Mean CPI of 1.7%/quarter or higher will help lift the Aussie Dollar against other currencies. But he also points out that worries of a global recession will make it hard for the AUD/USD to breach the $0.70 price mark, especially with the FOMC decision due on the same day.

Wednesday will see the US Federal Reserve announcing its new interest rates. The market expectation is for a hike by 75bps, but there are outside chances of a 100bps rate hike. If the Fed upends market expectations with an aggressive rate hike, this could extend the pullback move much deeper, capping any advances.

AUD/USD Forecast

The active daily candle has faced rejection from the 0.69848 resistance level. This rejection has created a pullback that needs more momentum to target the 0.68719 support level (15 June and 20 July lows). If this pullback breaks down this support, the pathway toward the 1st July low at 0.67664 becomes clearer. Below this level, 0.66742 (14 July 2022 low) constitutes an additional harvest point for the bears.

On the flip side, a break of the 0.69848 resistance (10 May and 21 June 2022 highs) creates an opportunity for the bulls to push toward the 0.70973 price mark (21 December 2021 and 24 February 2022 lows). If the bulls clear this barrier, they will have clear skies to aim for 0.72420, which is where previous highs of 24 December 2021 and 7 June 2022 are located. Above this level, additional harvest points are seen at 0.73454 (3 March high, 18 April low) and 0.74077, the site of the 18 April high.

AUD/USD: Daily Chart