AUD/USD bulls engage and target a higher high on CPI day

AUD/USD has been trading in firmer hands towards the North American close and has travelled from a low of 0.7484 to a high of 0.7525 on the day. The market's attention will now turn to the Asian sessions key data in the Australian third quarter Consumer Price Index. It will then it’s in the hands of the RBA next week. 

Commodity prices were higher again on Tuesday with the CRB Index by 0.25% which has helped the Aussie keep its head above water. AUD/USD traded above $0.75 against the greenback for the first time since July. This happened despite the US dollar edging up on Tuesday. Traders are awaiting news from upcoming central bank meetings that might attract some forex volatility.

Meanwhile, a report showed that US consumers were more confident about the economy than expected. This gives rise to a higher US dollar when considering the effect consumer confidence at the highest of the covid 4th wave had on the greenback.  For now, the US dollar is between its one-year high that was reached earlier this month and the one-month low touched early on Monday. 

AUD's domestic risks

Domestically, the risks for AUD stay with the Evergrande story in China which appears to have taken a less concerning path, and this has clearly benefited the highly exposed AUD. However, it is unlikely that there can be any more - significant upside room for AUD on the back of improving sentiment in China. Instead, the Aussie currency with face today's 3Q CPI data out of Australia.

Traders are bracing for deceleration from the 3.8% 2Q figure as Covid restrictions generated some deflationary pressures in late summer.  Consensus is reported at 3.1% for the headline rate, but given the massive surprise in New Zealand’s very strong (4.9%) read for the same quarter, there could be some follow-through here for Australia. If there is a disappointment, however, this will underpin the RBA’s dovish stance and likely weigh heavily on the Aussie, sending AUD/NZD back into its consolidation depths and AUD/USD back into a correction of the current bullish impulse on the daily chart.

AUD/USD technical analysis

As seen in the chart above, the 50% mean reversion has acted as support and the price is building a bullish case from here. However, a break of support will open risk back towards 0.7350 again.