- Investors are eagerly awaiting US inflation data.
- There is a 61.2% chance the Fed will cut rates in September.
- The Australian government expects inflation to reach the central bank’s target by the end of this year.
The AUD/USD forecast reveals a flat path, marked by dollar consolidation ahead of significant US inflation figures. Investors are largely on the sidelines, waiting for more clues about the Fed’s rate cut prospects. As a result, trade is thin.
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Expectations of a Fed rate cut recently rose after the US released several bad reports. Data on employment and service activities indicate a slowdown in the economy. As a result, investors are more confident that high interest rates are reducing economic demand. For this reason, there is a 61.2% chance that the Fed will cut rates in September. At the same time, markets are betting that the Fed will cut a total of 50 basis points this year.
However, inflation numbers are more important in shaping rate cut expectations. Therefore, there is much anticipation in the markets to see if inflation will support or reduce these expectations.
As we approach the September meeting, policymakers are looking for more evidence that inflation is on a clear downward trend. If there is no such evidence in the remaining inflation reports, they may not be confident enough to start cutting rates this year.
Elsewhere, the Australian government expects inflation to reach the central bank’s target by the end of this year. This is a more optimistic view than the RBA. Economists at the central bank expect inflation to end the year at around 3.8%.
AUD/USD key events today
It will be a quiet session, as neither Australia nor the US will release high-impact economic data.
AUD/USD Technical Forecast: Consolidation near 30-SMA
On the technical side, the AUD/USD price is consolidating near the 30-SMA after the bulls recently took control. Initially, the price fell and broke the 30-SMA, threatening a bullish bias. However, the bulls regained the lead when the price broke above the SMA. At the same time, the RSI is back above 50, in bullish territory.
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Although the bulls are holding the reins, the momentum has weakened and the price is making small-bodied candles. If the bulls find their foothold above the SMA, the price is likely to rise to 0.6650. Otherwise, it will fall further to retest the bullish trend line.
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