- Investors are eagerly expecting US inflation data.
- There is a 61.2% chance that the Fed will cut rates in September.
- Australia’s government expects inflation to reach the central bank’s target by the end of this year.
The AUD/USD forecast reveals a flat trajectory, marked by the dollar’s consolidation ahead of significant US inflation figures. Investors are mostly on the sidelines, awaiting more clues on the Fed’s rate-cut outlook. As a result, trading is thin.
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Fed rate-cut expectations have risen recently after the US released several downbeat reports. Employment figures and service activity data pointed to a slowdown in the economy. As a result, investors are more confident that high interest rates are lowering 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 implement cuts totalling 50 basis points this year.
However, inflation figures are more significant in shaping rate-cut expectations. Therefore, there is a lot of anticipation in the markets to see whether inflation will support or lower these expectations.
As we draw nearer to the September meeting, policymakers seek more evidence that inflation is on a clear downtrend. If there is no such evidence in the remaining inflation reports, they might not be confident enough to start cutting rates this year.
Elsewhere, Australia’s 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’s. Economists in 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 back control. Initially, the price fell and punctured the 30-SMA, threatening the bullish bias. However, the bulls were back in 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 bulls are holding the reins, momentum has weakened and the price is making small-bodied candles. If bulls find their footing above the SMA, the price will likely rise to 0.6650. Otherwise, it will fall further to retest the bullish trendline.
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Saqib Iqbal
