- US inflation has stalled above the central bank’s target.
- Investors are waiting to see if US inflation will surprise again.
- China’s exports and imports improved in April as domestic and foreign demand improved.
The AUD/USD outlook is relatively stable as the greenback gains ahead of the US inflation report, while Australians remain firm thanks to encouraging data from China. The dollar is gaining momentum as markets brace for inflation next week, which could change the outlook for a Fed rate cut.
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In recent months, the US has released worse-than-expected inflation data, leading to the conclusion that inflation has stalled above the central bank’s target. As a result, policymakers lost confidence in progress toward lower inflation, leading to confusion over the timing of rate cuts. However, the latest jobs report raised expectations that the Fed could start cutting interest rates in September.
Next week, investors will be waiting to see if inflation surprises again. A positive surprise could revive the view that the Fed may cut only once or not at all in 2024. Such an outcome would be bullish for the dollar. However, if the recent weakness in the labor market is reflected in the inflation report, the chances of a cut in September will increase.
Meanwhile, data from China on Thursday showed the economy is improving. Accordingly, the yuan and the Australian dollar strengthened. As domestic and foreign demand rose, China’s exports and imports improved in April. It is clear that recent policy support measures have improved economic activity in a fragile economy. Namely, exports in April increased by 1.5% on an annual basis. Similarly, imports for April rose 8.4%, well above forecasts for a 4.8% increase.
AUD/USD key events today
- First jobless claims in the US
- US 30-year bond auction
AUD/USD Technical Outlook: Bullish bias persists despite breakout below 30-SMA
On the technical side, AUD/USD is trading in a tight range near the key 0.6575 level. Furthermore, it is trading below the 30-SMA with the RSI just below 50, indicating bearish sentiment.
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However, the larger bullish trend remains intact as the price continues to trade above the support trend line. If it fails to break below this trend line, the target level of 0.6650 will also be reversed. On the other hand, if it breaks below the trendline, it would confirm a new bearish bias. This would allow the price to reach the support level of 0.6475.
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