AUD/USD Price Forecast: Sits near May 14 high, above 0.7200 as US inflation data looms
- AUD/USD extends its consolidative price move as traders keenly await the key US inflation data.
- RBA rate hike bets continue to act as a tailwind for the Aussie amid the JPY-led USD weakness.
- The constructive technical setup backs the case for an extension of a well-established uptrend.
The AUD/USD pair holds steady above the 0.7200 mark through the Asians session on Thursday and remains close to its highest level since May 14, touched earlier this week. Traders seem hesitant and opt to wait for the key US inflation data for more cues about the Federal Reserve's (Fed) policy path, which will drive the US Dollar (USD) and provide a fresh impetus to the currency pair.
In the meantime, USD bulls remain on the defensive amid a hawkish Bank of Japan (BoJ)-inspired rally in the Japanese Yen (JPY), acting as a tailwind for the AUD/USD pair. Furthermore, rising bets for another interest rate hike by the Reserve Bank of Australia (RBA) later this month continue to support the Australian Dollar (AUD) and back the case for further near-term gains.
Meanwhile, traders have been pricing in a greater chance that the US central bank will raise borrowing costs at its upcoming policy meeting on September 15-16. Apart from this, a further escalation of tensions between the US and Iran offers some support to the safe-haven Greenback, which, in turn, holds back AUD/USD bulls from positioning for any further appreciating move.
From a technical perspective, the recent move higher from the August monthly low has been along an upward-sloping channel. This points to a well-established uptrend and suggests that the path of least resistance for the AUD/USD pair remains to the upside. However, mixed momentum oscillators might keep spot prices capped near the top boundary of the aforementioned channel.
In fact, the Relative Strength Index (RSI) is around 58, suggesting firm but not overstretched buying pressure. In contrast, the slightly negative Moving Average Convergence Divergence (MACD) line hints at a modest loss of upside momentum rather than a clear reversal. However, a break above the channel resistance at 0.7260 should pave the way for an extension of the uptrend.
On the downside, initial support is seen at the 100-period SMA around 0.7172, ahead of the channel floor near 0.7161, where a drop below would undermine the current bullish structure and signal a deeper corrective phase within the broader advance.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
AUD/USD 4-hour chart
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.