AUD/USD Technical Analysis Summary
The recent movement of the AUD/USD currency pair has garnered attention following a strong inflation report from Australia. The pair has reached its highest level since early January, driven by a surprising increase in the Consumer Price Index (CPI).
Inflation Report Insights
Australia's CPI rose by 3.5% year-on-year in July, a slight decrease from 3.8% in June but above the expected 3.4%. This report, however, is complicated by the influence of state and federal electricity rebates, which may distort the true inflation picture. The report's limited scope, only including data from Queensland and Western Australia, suggests that the next report could show a more significant impact, potentially leading to a deceleration in inflation.
Market Reaction
In response to the inflation data, the Australian interest rate markets adjusted their expectations, with a slight increase in the likelihood of a rate cut by the Reserve Bank of Australia (RBA). This shift contributed to the AUD/USD reaching a session high of 0.6812, marking a significant resistance level not seen since January.
Technical Indicators
Despite the initial bullish movement, the AUD/USD has struggled to maintain its upward trajectory, raising concerns about a potential bull trap. Key technical indicators such as the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) are still showing bullish signals, suggesting that the pair remains a buy-on-dips opportunity.
Resistance and Support Levels
A sustained break above the 0.6800 level could lead to a retest of the resistance zone between 0.6871 and 0.6893, which includes a significant downtrend that began in early 2021. Conversely, on the downside, the pair is expected to find support around 0.6715, providing a buffer against potential declines.
Conclusion
In summary, while the AUD/USD has shown strength following the inflation report, traders should remain cautious due to the potential for volatility from upcoming economic events and the incomplete nature of the current inflation data. Monitoring key resistance and support levels will be crucial for future trading decisions.