The Australian Dollar (AUD) against the US Dollar (USD) continued its upward trajectory for a third consecutive session on Friday. This sustained rise is largely attributed to recent US economic data that bolsters the anticipation of a Federal Reserve (Fed) interest rate cut in the upcoming week.
Recent reports from the US Labor Department indicate an increase in Initial Jobless Claims for the week ending September 6, with claims rising to 230,000 from the previous week’s 228,000. This uptick aligns with expectations and highlights ongoing labor market concerns.
Additionally, the Producer Price Index (PPI) for August recorded a 0.2% month-on-month increase, surpassing the forecasted 0.1% rise. Core PPI also accelerated to 0.3% month-on-month, higher than the expected 0.2% increase and a rebound from July’s contraction.
The Consumer Price Index (CPI) data for August showed a decline in headline inflation to 2.5% year-on-year, down from 2.9% previously. However, core inflation, which excludes food and energy, remained steady at 3.2% year-on-year, with a monthly rise to 0.3% from 0.2%.
These mixed signals have heightened the likelihood of the Federal Reserve initiating its easing cycle with a 25-basis point cut in September. Investors are now shifting their focus to the upcoming Michigan Consumer Sentiment Index, scheduled for release on Friday, which could provide further insights into economic sentiment and potential monetary policy shifts.
On the domestic front, Australia’s Consumer Inflation Expectations eased slightly to 4.4% in September from August’s four-month high of 4.5%. This moderation underscores the Reserve Bank of Australia’s (RBA) ongoing efforts to manage inflation while maintaining employment gains.
Former RBA Governor Bernie Fraser has criticized the current RBA Board for prioritizing inflation control over job market concerns. Fraser has urged the Board to consider reducing the cash rate, warning of “recessionary risks” that could adversely impact employment.
In a related note, Sarah Hunter, Assistant Governor for Economics at the RBA, indicated that high interest rates are suppressing demand, potentially leading to a mild economic downturn. Hunter also noted that while the labor market remains relatively tight, employment growth is expected to continue, albeit at a slower pace compared to population growth.
On the technical front, the AUD/USD pair is trading around 0.6730 on Friday. Analysis of the daily chart reveals that the pair has broken above a descending channel, signaling a potential shift from a bearish to a bullish trend. The 14-day Relative Strength Index (RSI) has moved above the 50 level, further supporting this positive momentum.
Should the upward trend continue, the AUD/USD pair may approach its seven-month high of 0.6798, with a key psychological level of 0.6800 in sight. Conversely, immediate support is expected around the upper boundary of the descending channel near 0.6720, followed by the nine-day Exponential Moving Average (EMA) at 0.6707.
A return to the descending channel could reinforce a bearish bias, potentially leading the pair to test the lower boundary of the channel around 0.6600, with further support near 0.6575.
