AUD/USD Current Price: 0.6610
- Australia’s monthly CPI slowed more than expected, weighing on RBA expectations for next week.
- The US Dollar strengthened on Fed rate hike expectations and a decline in Wall Street.
- The AUD/USD remains under pressure after erasing most of June’s gains.
After two days of consolidation, the AUD/USD resumed the downside after Australian inflation data and also on the back of a stronger US Dollar. The pair remains under pressure, struggling to hold above 0.6600. The bearish tone persists, with the price looking for a new support.
Data from Australia shows the Monthly Consumer Price Index annual rate decelerated from 6.8% in April to 5.6% in May, below the market consensus of 6.1%. The Trimmed CPI dropped from 6.7% to 6.1%. The annual rate was the lowest since April 2022 but still remains above the 2-3% target. Another core measure showed a 6.4% annual increase, suggesting that underlying pressure remains in place.
Tightening expectations from the Reserve Bank of Australia (RBA) eased after the numbers. The RBA meets next week and is expected to keep rates unchanged; however, market participants still see more rate hikes before year-end. Such a scenario to materialize requires inflation above target and a still tight labor market. The peak rate is now seen below 4.50%. On Thursday, Australia will report May retail sales. The consensus is for an increase of 0.1%, after a flat reading in April.
The US Dollar rose across the board despite falling US Treasury yields. The odds of a rate hike at the July meeting rose, offering momentum to the Dollar. The CME FedWatch Tool shows the odds of a rate hike in July at 81% on Wednesday, up from 77% on Tuesday. Critical for the Dollar will be the Personal Consumption Expenditure on Friday and next week’s jobs reports. On Thursday, the US will release a new reading of Q1 GDP, the weekly Jobless Claims, and Pending Home Sales.
AUD/USD short-term technical outlook
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The AUD/USD broke to the downside, resuming the slide from near 0.6900. It has erased most of June’s gains and fallen below the 61.8% Fibonacci retracement of the rally that started early in the month. The bias is to the downside, and the current support is the 0.6600 area. A consolidation below would expose the next area at 0.6580, followed by a more relevant level at 0.6560 that could offer a short-term rebound if reached.
On the 4-hour chart, the AUD/USD continues to move within a downtrend, well below key moving averages. The Relative Strength Index (RSI) is at oversold levels, suggesting some potential consolidation ahead. However, no signs of a recovery are seen. A move above 0.6670 would alleviate the bearish pressure. The key dynamic resistance (downtrend line) awaits at 0.6695. If the pair surpasses that line could indicate that the move lower is over. On the contrary, a break under 0.6600 sets up a test of the March low at 0.6560.
Support levels: 0.6595 0.6560 0.6640
Resistance levels: 0.6665 0.6700 0.6725