- The core US PCE price index will show whether price pressures are falling fast enough to warrant a 50 basis point rate cut.
- US GDP increased by 3.0% in the second quarter, higher than expected.
- Sales in Australia were flat in July, down from previous strong readings.
The AUD/USD outlook is bullish as the dollar eases ahead of US inflation data, which will shape the outlook for a Fed rate cut. Meanwhile, expectations for an RBA rate cut remained unchanged after data showed weaker retail sales in July.
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AUD/USD rose on Friday as investors positioned themselves ahead of the core PCE price index report. The inflation measure will show whether price pressures are falling fast enough to justify a 50 bps rate cut. If not, the Fed will likely resort to a smaller cut of 25 basis points. Furthermore, markets will begin to price in a gradual cycle of rate cuts.
On Thursday, data from the US revealed a strong economy. GDP expanded by a more-than-expected 3.0% in the second quarter, increasing the chances that the Fed will achieve a soft landing. At the same time, initial jobless claims were lower than expected, indicating a still tight labor market. Accordingly, the dollar rose.
Meanwhile, Friday’s data showed Australian sales were flat in July, down from previous strong readings. Meanwhile, economists had expected an increase of 0.3%. In June, retail sales jumped by 0.5%. The disappointing figures made it more likely that the Reserve Bank of Australia’s next move would be a rate cut.
Still, after July’s upbeat inflation report, expectations for an RBA rate cut remained muted. Investors are pricing in an 80% chance of a rate cut in December. Meanwhile, policymakers anticipate the first cut sometime next year.
AUD/USD key events today
- Core US price index PCE m/m
AUD/USD Technical Outlook: Price pauses as bullish momentum fades
On the technical side, AUD/USD is trading in a tight range near the critical psychological level of 0.6800. However, the bias is bullish as the price is above the 30-SMA. At the same time, the RSI is trading in bullish territory above 50.
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However, the RSI has shown weakness in the bullish trend. It made a bearish divergence, a sign that the pair could be ready to reverse to the downside. If bears emerge, they could push the price below the 30-SMA to reverse the trend. Otherwise, the bulls will regain momentum and break above 0.6800 to make a higher high.
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