AUD/USD Price Forecast: Remains on the defensive below 0.7100; US CPI report awaited

AUD/USD consolidates on Friday following the previous day’s modest pullback from a three-year top.
Traders now seem reluctant and opt to wait for the release of the latest US consumer inflation figures.
The technical setup favors bearish traders and backs the case for a further near-term corrective slide.

Haresh Menghani FXStreet

The AUD/USD pair oscillates in a narrow trading band below the 0.7100 mark through the Asian session as traders move to the sidelines ahead of Friday's release of the latest US consumer inflation figures. Nevertheless, spot prices remain close to a three-year high, touched on Thursday, and seem poised to register gains for the fourth week in a row.

From a technical perspective, the overnight breakdown through a two-week-old trading range and the 100-hour Simple Moving Average (SMA) backs the case for an extension of the corrective slide. The Moving Average Convergence Divergence (MACD) remains in negative territory near the zero line and has been edging higher, with a contracting histogram suggesting fading bearish pressure. The Relative Strength Index (RSI) prints 39, below the 50 midline and not oversold, aligning with a subdued bias.

The rising 100-hour SMA at 0.7092 caps the near-term upside. Bias would improve on a sustained break above the said hurdle, which could open room for recovery as momentum stabilizes. That said, failure to reclaim it would keep rallies contained and preserve a seller-tilted backdrop. A move by the MACD into positive territory would strengthen the upside case, and an RSI rebound above 50 would confirm improving momentum.

Meanwhile, traders might refrain from placing aggressive directional bets and opt to wait for the US Consumer Price Index (CPI) report. The crucial data could provide more cues about the US Federal Reserve’s (Fed) rate-cut path, which, in turn, will drive the USD demand and provide a fresh impetus to the AUD/USD pair. That said, the Reserve Bank of Australia’s (RBA) hawkish stance might continue to act as a tailwind for the Aussie.

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

AUD/USD 1-hour chart

Australian Dollar FAQs

What key factors drive the Australian Dollar?

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

How does the health of the Chinese Economy impact the Australian Dollar?

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

How does the price of Iron Ore impact the Australian Dollar?

Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

How does the Trade Balance impact the Australian Dollar?

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.

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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