AUD/USD clings to recovery gains above mid-0.6600s, eyes US CPI for fresh impetus

AUD/USD attracts some buyers near the 100-day SMA support amid renewed USD weakness.
A positive risk tone further benefits the Aussie and remains supportive of the intraday uptick.
The lack of follow-through buying warrants caution for bulls ahead of the key US CPI report.

Haresh Menghani FXStreet

The AUD/USD pair manages to defend the 100-day Simple Moving Average (SMA) support and attracts some buyers near the 0.6645 region on Wednesday. Spot prices maintain the bid tone near the 0.6660-0.6665 area through the early European session and for now, seem to have snapped a three-day losing streak to over a three-week low touched on Tuesday.

The US Dollar (USD) struggles to capitalize on its gains registered over the past three days and retreats from the vicinity of the monthly peak amid dovish Federal Reserve (Fed) expectations. Apart from this, a positive tone around the European equity markets is seen undermining the safe-haven Greenback and benefiting the risk-sensitive Australian Dollar (AUD). This turns out to be a key factor offering some support to the AUD/USD pair, though the intraday uptick lacks bullish conviction.

Investors prefer to wait for the release of the latest US consumer inflation figures for cues about the Fed's rate-cut path, which will play a key role in influencing the USD price dynamics and provide a fresh directional impetus to the AUD/USD pair. Any further signs of cooling inflation would lift bets for a larger, 50 basis points rate cut by the Fed in September and weigh heavily on the buck. Meanwhile, the reaction to a stronger US CPI print is likely to be limited, suggesting more USD weakness.

The aforementioned fundamental backdrop supports prospects for a further near-term appreciating move for the AUD/USD pair amid the Reserve Bank of Australia's (RBA) hawkish stance. That said, it will still be prudent to wait for strong follow-through buying before confirming that the recent corrective pullback from a multi-month peak, around the 0.6825 region touched in August has run its course and placing aggressive bullish bets around the currency pair.

Economic Indicator

Consumer Price Index (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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