The AUD/USD currency pair experienced a significant drop to 0.6764 at the start of the week, primarily driven by a strengthening US dollar rather than any inherent weakness in the Australian dollar itself. This shift in the pair’s dynamics can be attributed to the latest Core PCE inflation data released last Friday, which moderated market expectations regarding the pace of future interest rate adjustments by the Federal Reserve. The market is now in a consolidation phase, eagerly awaiting vital US employment data for August, scheduled to be released this Friday. This upcoming report holds significant weight as it could heavily influence the Federal Reserve’s decisions in the near term.
In August, the manufacturing sector in Australia continued to face challenges, with high loan servicing costs and subdued demand from both businesses and consumers acting as significant headwinds. Investors are also looking forward to further insights from Reserve Bank of Australia (RBA) Governor Michelle Bullock. Recently, she indicated that it is too early to consider a relaxation of monetary policy due to persistently high inflation despite some signs of cooling. The minutes from the latest RBA meeting have echoed this sentiment, suggesting that the central bank may maintain a restrictive monetary policy stance for an extended period.
Technical Analysis:
The AUD/USD is currently navigating the first wave of decline towards the level of 0.6743. It is anticipated that this target will be reached soon, followed by a corrective move to 0.6783, testing this level from below. This would define the upper bounds of a consolidation range. If the pair breaks downward from this range, a further decline to 0.6690 is anticipated. A breakout below this level could signal the start of a new downward trend towards 0.6640, potentially extending to 0.6555. The MACD indicator supports this bearish outlook with its high signal line directed downwards. On the H1 chart, the pair is forming a downward wave structure targeting 0.6743. After reaching this level, a rebound to 0.6783 may occur, setting the stage for the next downward phase. This scenario is corroborated by the Stochastic oscillator, with its signal line preparing to drop from below 80 to around 20, indicating potential for continued declines.
