The AUD/USD exchange rate has been moving cautiously as traders closely monitor the upcoming US inflation data, which could set the tone for the Federal Reserve’s monetary policy decision next week. 

At the time of writing, the currency pair was trading at 0.6585, just below this week’s high of 0.6623, reflecting heightened uncertainty across the foreign exchange market. Arbitics experts deliver a detailed analysis of the subject in their latest piece.

This movement reflects how investors are aligning their positions ahead of key macroeconomic indicators, particularly the consumer price index (CPI) report, which is expected to influence the US dollar (USD) outlook and, by extension, the Australian dollar (AUD) trajectory.

US Inflation Data and Federal Reserve Outlook

One of the main drivers for AUD/USD volatility is the pending release of US producer price index (PPI) and consumer price index (CPI) data for August.

• Economists surveyed by Reuters anticipate that the core PPI will cool slightly, dropping from 3.7% in July to 3.5% in August.
• However, the headline PPI is projected to rise marginally from 3.2% to 3.3%, suggesting that cost pressures are still present in the US economy.

The more significant release will be the consumer inflation figures due on Thursday. Analysts expect the headline CPI to rise from 2.7% in July to 2.9% in August, reflecting the lingering impact of import tariffs imposed by the US Administration.

Implications for the Federal Reserve

Despite sticky inflation, the broader backdrop points toward a potential rate cut by the Federal Reserve (Fed) at its policy meeting next Wednesday. The justification comes from a deteriorating labor market:

• Nonfarm payrolls data revealed the economy created only 22,000 jobs in August, well below expectations.
• The unemployment rate rose to 4.3%, its highest level since early 2021.
• Payroll revisions indicated that job growth over the past year was weaker than initially reported.

This combination of slowing job growth and moderate inflation pressures may push the Fed to adopt a more accommodative stance. Lower US interest rates would likely weaken the USD, giving upward momentum to the AUD/USD pair.

Reserve Bank of Australia (RBA) Stance

On the other side of the equation, the Reserve Bank of Australia (RBA) remains cautious. The RBA faces its own economic headwinds, including:

• Weak consumer spending and sluggish household demand.
• A softening labor market, with underemployment still elevated.
• Global uncertainty is driven by trade disputes and slowing Chinese demand for Australian exports.

Market participants are split on whether the RBA will hold rates steady or deliver a small rate cut in its next monetary policy meeting. However, given that Australian yields are already at record lows, the central bank may prefer to maintain current settings while monitoring global developments.

This divergence, between a Fed expected to cut rates and an RBA likely to stay cautious, creates a favorable environment for AUD/USD upside momentum.

AUD/USD Technical Analysis

The technical setup for AUD/USD supports a potential continuation of the bullish trend.

Daily Chart Structure

• The currency pair is consolidating around 0.6580, just below this week’s high of 0.6623.
• Notably, this level represents the highest point since June and the highest level year-to-date, reinforcing its importance as a resistance zone.
• Earlier, the pair completed a double-top formation around 0.6413 and successfully broke through the neckline resistance at 0.6567, signaling bullish continuation.

Technical Indicators

Several technical indicators are pointing toward further gains:

• 50-day moving average (MA): The pair remains comfortably above this line, reinforcing bullish bias.
• Ichimoku cloud: Price action is firmly above the cloud, indicating that bullish momentum is intact.
• Percentage Price Oscillator (PPO): Both PPO lines are trending higher, confirming strong upward momentum.

Key Levels to Watch

• Immediate resistance lies at the year-to-date high of 0.6628.
• A decisive breakout above this level could open the door toward the psychological barrier of 0.6700.
• On the downside, support levels are at 0.6567 (previous resistance now turned support) and further at 0.6500, where buyers are likely to step back in.

Conclusion

The AUD/USD forex signal suggests that the pair is poised for an upside breakout toward 0.6700, supported by a combination of technical momentum and fundamental drivers. 

With the US Federal Reserve under pressure to ease policy and the Reserve Bank of Australia likely to stay cautious, traders should keep a close eye on this week’s CPI and PPI reports as catalysts for the next major move. A successful push above 0.6628 resistance would strengthen the bullish case, positioning the Australian dollar for further gains against the US dollar in the near term.