AUD/USD Price Forecast: Positive Divergence with RSI backs further recovery

The Australian Dollar bounces back to near 0.7175 against the US Dollar.
Hot US PPI report for August has boosted hawkish Fed bets.
The RBA is expected to deliver more interest rate hikes this year.

Sagar Dua FXStreet

The Australian Dollar (AUD) is up 0.22% at around 0.7175 against the US Dollar (USD) during the European trading session on Friday. The Aussie pair recovers strongly after a significant fall the previous day, driven by a significant jump in the US Dollar, following strong United States (US) Producer Price Index (PPI) data for August.

The data showed on Thursday that headline producer inflation accelerated at a faster-than-expected pace to 5.3% Year-on-Year (YoY). The core PPI – which excludes volatile food and energy items – grew by 4.6%, as expected.

A hot US PPI report prompted hawkish Fed expectations ahead of the Consumer Price Index (CPI) data for August, releasing at 12:30 GMT.

On the Aussie front, financial markets seem confident that the Reserve Bank of Australia (RBA) will raise interest rates again this year, following warnings of upside inflation risks from Deputy Governor Andrew Hauser on Tuesday.

Analysts at Rabobank highlight that the RBA’s policy tone has shifted after “Hauser [gave] a hawkish speech, which has markets thinking of hikes this month and in November.”

AUD/USD Technical Analysis

AUD/USD trades at 0.7174, holding a constructive bullish tone as it remains above the 20-day exponential moving average (EMA) at 0.7159.

The formation of a positive divergence between the price and the Relative Strength Index (RSI) has set a strong recovery.

On the downside, immediate support is seen at the 20-day EMA around 0.7160, followed by 0.7100. Looking up, the pair aims to revisit the four-year high near 0.7280.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

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 (Fed) 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

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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