- Data from Australia showed that inflation fell to a four-month low in July.
- Investors reduced the probability of an RBA rate cut in November from 58% to 48.4%.
- Market participants are eagerly awaiting US GDP and PCE data.
AUD/USD price analysis paints an optimistic picture, with the Aussie rising after inflation in Australia beat forecasts. Meanwhile, the dollar weakened as investors awaited further clues on the Fed’s rate cut prospects.
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On Wednesday, Australia released data showing that inflation fell to a four-month low in July. In particular, the consumer price index fell from 3.8% in June to 3.5% in July. However, the figure was below estimates of a 3.4% increase. In addition, most of the movement was due to a drop in electricity prices after government subsidies. As a result, investors reduced the probability of an RBA rate cut in November from 58% to 48.4%.
The Reserve Bank of Australia remains restrictive due to high inflation. Nevertheless, the markets are already factoring in at least one interest rate cut by the end of the year. This forecast remains valid as the Fed is also likely to start cutting borrowing costs in September.
The greenback has remained fragile since Powell gave the green light to rate cuts during the Jackson Hole Symposium. Investors are fully expecting a rate cut in September, but it could be as small as 50 or 25 basis points.
If the data ahead of the meeting shows further economic weakness, the Fed will opt for the larger rate cut. On the other hand, if the data is in line with forecasts or slightly above, policymakers will vote for the smaller cut. Market participants are eagerly awaiting the US GDP and PCE data.
Important events for AUD/USD today
Investors will continue to closely monitor the Australian inflation report as no other major reports are scheduled for today.
AUD/USD technical price analysis: Bulls lose momentum at 0.68
On the technical side, the AUD/USD pair has risen and retested the 0.6800 resistance level. Bulls are in the lead as the price is above the 30-SMA. At the same time, the RSI supports bullish momentum above 50. However, it is also showing a bearish divergence that suggests weakening bullish momentum.
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If the bulls weaken, they may fail to break the resistance at 0.6800. Consequently, the price could return to the SMA or head lower. However, an increase in momentum could allow AUD/USD to make a new high above 0.6800.
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