AUD/USD Forecast: Positive momentum for the Aussie ahead of CPI and FOMC

AUD/USD Current Price: 0.6785

• The Aussie rose again, supported by risk appetite and mixed commodity prices.
• Australian inflation data is due on Wednesday, followed by the FOMC decision.
• The AUD/USD pair is rising further from weekly lows, looking at 0.6800.

The AUD/USD rose on Tuesday, having its best day in more than a week, supported by risk appetite, higher commodity prices, and market positioning ahead of key data from Australia and the FOMC decision.

Hopes for Chinese stimulus continue to be a driver in the market, and it is also leading to an appreciation of the Chinese Yuan following the Politburo meeting. But sooner or later, markets will likely want to see clear action and more aggressive rate cuts. This expectation will continue to be a positive driver for the Aussie.

On Wednesday, Australia will report the Monthly Consumer Price Index (CPI) for June, expected to show a decline in the annual rate from 5.6% to 5.4%. Also, the Q2 CPI is due, and a slowdown in all inflation indicators is expected. A different outcome would bolster expectations of more rate hikes from the Reserve Bank of Australia (RBA), which meets next week. This scenario could be favorable for the Aussie, but not necessarily on a sustainable basis as it would mean more tightening from the central bank and could lead to a significant slowdown in economic activity. On the contrary, a sharp slowdown in inflation could weigh on the Aussie, but it would be positive news for the Australian economy.

The key event on Wednesday will be the decision of the Federal Reserve. A 25 basis point rate hike is expected. The market will look at the statement and Powell's words for clues about what the central bank will do next, or more precisely, what it would take for the Fed to keep raising rates or begin a more durable pause. The event warrants volatility across the currency market and could define the direction of the AUD/USD, at least until the next round of US data that includes GDP and Jobless Claims on Thursday and the Core Personal Consumption Expenditure on Friday, ahead of next week's employment reports.

AUD/USD short-term technical outlook

The AUD/USD rose again on Tuesday, extending the rebound from the 20-day Simple Moving Average (SMA) toward the 0.6800 area. The rebound pushed technical indicators in the daily chart to the upside. A daily close above 0.6820 would open the doors for a test of the medium-term resistance area at 0.6900, which capped the upside in June and July. On the contrary, a close below 0.6690 would suggest more weakness ahead, exposing July lows around 0.6600.

On the 4-hour chart, the bias is to the upside, and the odds of more gains remain in place while above 0.6755. The immediate resistance is the 0.6800 area, which also contains the 100-SMA. Above that, the next area to watch stands at 0.6830. Technical indicators also point to the upside. A slide under 0.6750 would suggest some consolidation ahead. A firm break below a short-term uptrend line, currently at 0.6735, would weaken the short-term outlook for the Aussie.

Support levels: 0.6750 0.6720 0.6690

Resistance levels: 0.6805 0.6830 0.6870

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