Australian Dollar strengthens after hot CPI report; eyes multi-month high ahead of US PCE

AUD/USD scales higher for the second straight day amid a combination of supporting factors.
The Australian CPI keeps RBA rate hike bets on the table and provides a modest lift to the AUD.
The USD consolidates amid Iran diplomacy hopes and sliding US bond yields, ahead of US PCE.

Haresh Menghani FXStreet

The AUD/USD pair attracts buyers for the second straight day and climbs to the 0.7170 area following the release of Australian consumer inflation figures during the Asian session on Wednesday. Spot prices remain close to the highest level since early June, touched last Friday, as traders now look to the US Personal Consumption Expenditures (PCE) Price Index for a fresh impetus.

The Australian Bureau of Statistics (ABS) reported that the headline Consumer Price Index (CPI) rose by 3.5% year-over-year (YoY) in July, down from the 3.8% increase recorded in the previous month. The reading, however, was higher than the 3.2% consensus estimate and left the door open for further policy tightening by the Reserve Bank of Australia (RBA), which, in turn, provides a modest lift to the Aussie.

The US Dollar (USD), on the other hand, struggles to attract any meaningful buyers amid diminishing odds for an immediate rate hike by the US Federal Reserve (Fed), declining US bond yields and US-Iran diplomacy hopes. Investors, however, might opt to wait for the release of the US PCE for more cues about the Fed's future policy path before placing fresh directional bets on the USD and the AUD/USD pair.

Tamer July US inflation data had shifted market expectations toward a policy hold at the September 15–16 meeting. Adding to this, a CNBC report showed on Monday that the US Treasury could use nearly $1 trillion to help fund the increased buybacks of longer-term bonds announced last week. Furthermore, falling oil prices ease inflation fears, leading to a further fall in US bond yields and undermining the USD.

The aforementioned fundamental backdrop seems tilted firmly in favor of AUD/USD bulls and backs the case for a further near-term appreciating move. Meanwhile, any corrective pullback is more likely to be bought into and remain cushioned.

AUD/USD 4-hour chart

Technical Analysis

The AUD/USD holds above the 100-period Simple Moving Average (SMA) on the 4-hour chart, at 0.7085, which suggests a constructive near-term bias. On the downside, immediate support is located at the 100-period SMA near 0.7085, where buyers are likely to defend the broader upswing. The pair would likely remain bid as long as it sustains above 0.7085, keeping the focus on continuation of the current recovery phase.

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

Economic Indicator

Consumer Price Index (YoY)

The Consumer Price Index (CPI), released by the Australian Bureau of Statistics on a monthly basis, measures the changes in the price of a comprehensive basket of goods and services acquired by household consumers. The indicator is the primary measure of headline inflation after a new methodology was applied to transition from quarterly to monthly readings, applying to data from April 2024 onwards. The YoY reading compares prices in the reference month to the same month a year earlier. A high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.

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