Aussie Rises as Inflation Surprise Boosts RBA Hike Bets

Key Moments

AUD/USD Extends Rally on Inflation Surprise

The Australian Dollar continued to gain ground against the US Dollar for a second consecutive session, with AUD/USD moving up toward the 0.7170 region following the release of Australian consumer price data during the Asian session on Wednesday. The pair is trading close to levels last seen in early June, reached on Friday, as market participants shift their focus to the upcoming US Personal Consumption Expenditures (PCE) Price Index for the next directional cue.

Australian CPI Data Supports RBA Tightening Bias

Fresh figures from the Australian Bureau of Statistics (ABS) showed that headline Consumer Price Index (CPI) inflation rose 3.5% year-over-year in July, easing from a 3.8% increase in the prior month. Despite the slowdown, the outcome topped the 3.2% consensus forecast, preserving expectations that the Reserve Bank of Australia (RBA) may still consider additional policy tightening. This higher-than-expected reading offered the Australian Dollar a moderate boost.

US Dollar Softens Ahead of PCE as Yields Decline

The US Dollar has struggled to attract significant buying interest as prospects for an imminent rate increase by the Federal Reserve appear to be fading. Lower US bond yields and optimism surrounding US-Iran diplomacy have further weighed on the currency. Market participants are now inclined to wait for the US PCE release to gain clearer insight into the Fed’s potential policy trajectory before committing to new positions in the USD and the AUD/USD pair.

Earlier, softer US inflation data for July had shifted market expectations toward a policy hold at the Federal Reserve’s September 15-16 meeting. Additionally, a CNBC report on Monday indicated that the US Treasury could deploy nearly $1 trillion to help finance expanded buybacks of longer-term bonds announced last week. At the same time, declining oil prices have reduced inflation concerns, pushing US bond yields even lower and adding to the pressure on the Dollar.

Taken together, these factors create a supportive backdrop for the Australian Dollar and reinforce the bullish bias for AUD/USD in the near term. Any dips are expected to attract buying interest and are likely to remain relatively shallow.

Technical Overview: AUD/USD 4-Hour Setup

On the 4-hour chart, AUD/USD is holding above the 100-period Simple Moving Average (SMA) at 0.7085, which is consistent with a constructive short-term outlook. The 100-period SMA around 0.7085 represents immediate support, where buyers are expected to defend the prevailing uptrend. As long as the pair remains above 0.7085, the market focus is likely to stay on extending the current recovery phase.