The AUD/USD pair traded more than half a percent stronger during Friday’s session, last seen near 0.7270. Investors took some profits from the recent US dollar rally, which brought the greenback lower Friday against all its major peers. However, it looks like the medium-term uptrend in US yields and USD might continue in the following days.
RBA remains dovish
The RBA continues to have a dovish tone. However, it plans to taper its QE program, starting in September amid expectations that the economy will bounce quickly once restrictions are lifted. But are they ever going to be lifted?
The RBA has become surprisingly prescriptive in its view that wages will need to be growing by at least 3% to push CPI inflation sustainably into the middle of the 2% to 3% target band. This will then trigger a rise in the Cash rate. It is the Bank’s view that this will not happen before 2024. This dovish outlook is likely to restrain the AUD,
US data not helping USD today
In the USA, the Fed’s favorite inflation indicator – The core PCE index – rose 3.6% year-over-year (unchanged from July but hotter than the expected 3.5% YoY) . According to this measure, inflation remains at 30-year highs and shows no signs of falling back toward the 2% target.
From other news, personal income declined notably to 0.2% in August, down from 1.1% in July, while personal spending improved sharply, from -0.1% to 0.8%.
Later today, the ISM manufacturing index is expected to marginally decline to 59.6, from 59.9 in the previous month . However, the employment index will most likely improve to 50.9.
It appears that the benchmark 10-year US yield has topped at 1.5%, at least from the short-term perspective, undermining the USD and giving some relief to other currencies, such as the Pound, Euro, or the Australian dollar.
Unlike many other USD pairs, the AUDUSD pair has not declined to new swing lows. Thus the bearish trend has not been confirmed yet. The immediate resistance stands in the 0.7320 region, where the 50-day moving average is converged with previous lows and highs . That is the crucial level for the Aussie.
The medium-term outlook might change to bullish if it jumps above it, targeting the current swing highs near 0.7480.
Alternatively, if the bearish pressure returns and the resistance is defended, bears will most likely have two targets in their minds: The first one at this week’s lows at 0.7170 and the second one at the current cycle lows near 0.71.