AUD/USD bounces away from daily lows but remains vulnerable after US CPI.

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  • AUD/USD witnessed a dramatic turnaround from a two-week high hit earlier this Tuesday.
  • The dollar rally after the US CPI turns out to be a key factor putting downward pressure on the pair.
  • The risk aversion drive helps drive flows away from the Aussie, which is perceived as riskier.

The pair AUD/USD it retraces more than 135 pips from two-week highs reached earlier this Tuesday and falls to the 0.6780-0.6775 zone amid a strong rally in US dollar demand during the early American session. However, the pair manages to recover a few pips and breaks above the 0.6800 level again.

The dollar saw a sharp intraday reversal from the monthly low and strengthened across the board in reaction to stronger US consumer inflation figures. Indeed, the headline CPI unexpectedly rose 0.1% in August and the annual rate fell to 8.3%, beating estimates for a decline to 8.1%.

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Also, the core CPI, which excludes volatile food and energy prices, rose 0.6% in August (0.3% expected) and rose to 6.3% year over year from 5.9% in July. The data revives bets for a more aggressive tightening of the Federal Reserve policy and gives a strong boost to the dollar.

Markets have started to price in the possibility of a big 100 basis point rate hike at the FOMC meeting in September and another 75 basis point rate hike in November. This is reinforced by the sharp rise in US Treasury yields, which, in turn, is seen as another factor underpinning the dollar.

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The prospect of faster rate hikes by the US central bank, coupled with recession fears, trigger a new wave of risk aversion. This is evident from the sharp decline in equity markets, helping to drive flows away from the perceived riskier Australian dollar.

With the last leg down, the AUD/USD pair reverses a significant part of the gains recorded in the last two sessions. Furthermore, acceptance below 0.6800 will set the stage for a further depreciation move towards intermediate support at 0.6740-0.6730 on the way to the 0.6700 round figure.

Technical levels

AUD/USD

Panorama
Last Price Today 0.6804
Today’s Daily Change -0.0086
Today’s Daily Change % -1.25
Today’s Daily Opening 0.689
Trends
20 Daily SMA 0.6867
50 Daily SMA 0.6896
100 Daily SMA 0.6966
200 Daily SMA 0.7115
levels
Previous Daily High 0.69
Previous Daily Minimum 0.6824
Previous Maximum Weekly 0.6877
Previous Weekly Minimum 0.6699
Monthly Prior Maximum 0.7137
Previous Monthly Minimum 0.6835
Daily Fibonacci 38.2% 0.6871
Daily Fibonacci 61.8% 0.6853
Daily Pivot Point S1 0.6843
Daily Pivot Point S2 0.6796
Daily Pivot Point S3 0.6767
Daily Pivot Point R1 0.6918
Daily Pivot Point R2 0.6947
Daily Pivot Point R3 0.6994

Source: Fx Street

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