Australian Dollar clings to early recovery near 0.6970, US data takes centre stage

The Australian Dollar maintained its early rebound near 0.6970 against the US Dollar during Wednesday's European trading session. However, it slipped 0.19% to trade close to 0.6970. In the major currency table, the Australian Dollar experienced its weakest performance against the British Pound. The heat map displays percentage changes between major currencies, with the base currency listed on the left column and the quote currency along the top row.

For instance, the percentage change between the Australian Dollar and the US Dollar illustrates AUD (base)/USD (quote). The currency pair drew bids close to 0.6958 after a weak start, driven by weak Australian Consumer Price Index (CPI) data for August. The data supported expectations of additional interest rate hikes from the Reserve Bank of Australia (RBA) in the near term, following a 100 basis points increase to 4.6% this year.

Analysts at Commerzbank explained that the latest inflation figures solidified the market's belief in more rate hikes from the RBA, despite the market's earlier anticipation. One day following the RBA's monetary policy meeting, the analysts remained unconvinced about hawkish RBA expectations and believed limited policy tightening was likely.

CPI data revealed inflation accelerated to 4% Year-on-Year (YoY), up from 3.5% in July. Meanwhile, the US Dollar faced pressure ahead of US ADP Employment Change data for September and the Personal Consumption Expenditure (PCE) Price Index data for August, both set for publication in the North American session. In the daily chart, AUD/USD traded at 0.6971, breaking below the 20-day exponential moving average (EMA) at 0.7078 and shifting the near-term trend to bearish.

The pair also slipped under the 61.8% Fibonacci retracement at 0.7008, indicating renewed downside pressure. The Relative Strength Index (RSI) at 29.2 entered oversold territory, suggesting the recent decline may not be exhausted. On the upside, resistance levels include the 61.8% retracement at 0.7008, the 50.0% level at 0.7052, the 20-day EMA at 0.7078, the 38.2% retracement at 0.7096, and the 23.6% level at 0.7150, setting a broader cap ahead of the cycle high near 0.7238.

Support is found at the 78.6% retracement at 0.6946, followed by the 100.0% Fibonacci anchor at 0.6866, where sellers might pause to reassess the trend if oversold conditions lead to profit-taking. The Reserve Bank of Australia (RBA) manages the nation's monetary policy, aiming to maintain price stability, an inflation rate of 2-3%, currency stability, full employment, and economic prosperity for Australians.

The RBA's primary tool is interest rate adjustments, which strengthen or weaken the Australian Dollar accordingly. Other tools include quantitative easing (QE) and quantitative tightening (QT). Higher inflation, once deemed negative, now often leads central banks to raise interest rates, attracting global capital inflows and boosting the local currency's value.

Macroeconomic indicators like GDP, PMIs, employment, and consumer sentiment impact the Australian Dollar. Strong economies tend to encourage the RBA to raise interest rates, supporting the AUD. QE weakens the AUD, while QT strengthens it. Sagar Dua has been associated with financial markets since his college days, pursuing post-graduation in Commerce in 2014 and starting his career thereafter.