Australian Inflation Rate Slides to 2.7% in August and into the RBA Target Range

Aussie Inflation Puts the RBA in the Spotlight

On Wednesday, September 25, Australian inflation figures influenced buyer demand for the AUD/USD pair. The Australian Monthly CPI Indicator fell from 3.5% in July to 2.7% in August.

According to the ABS,

• Housing (+2.6%), food and non-alcoholic beverages (+3.4%), and alcohol and tobacco (+6.6%) were the largest contributors.
• Automotive fuel prices were 7.6% down from August 2023, while electricity prices tumbled 17.9%. Electricity prices were down because of Commonwealth Energy Relief Fund rebates and State Government rebates.
• The CPI, excluding volatile items and holiday travel, fell from 3.7% in July to 3.0% in August.

AUD/USD Breakout and Inflation Impact on the RBA Rate Path

The softer-than-expected inflation figures could fuel speculation of a Q4 2024 RBA rate cut. On Tuesday, RBA Governor Michele Bullock stated during the press conference that the Monthly CPI Indicator will be important as it captures some services data.

However, she also stated that, while headline inflation may approach the target range, it might not reflect underlying inflation trends. Furthermore, the RBA Rate statement also highlighted that Board members expect inflation to temporarily decline. The forecasts indicate that inflation will not return sustainably to the target until 2026, supporting the AUD/USD breakout toward $0.70.

AUD/USD on a Breakout Despite the Monthly CPI Indicator

The AUD/USD responded to the inflation figures, briefly rising to a high of $0.68963 before falling to a low of $0.68441.

US Economic Calendar: New Home Sales in Focus

Later in the session on Wednesday, economists expect new home sales will slide by 5.1% in August after surging by 10.6% in July.

A larger-than-expected decline could fuel concerns about consumer sentiment and the US economy. Economists consider housing sector data a barometer for the US economy. Weaker demand for new homes could affect house prices, consumer confidence, and private consumption.

A more marked fall in new home sales may push the AUD/USD toward $0.70.

Short-Term Forecast for AUD/USD

Near-term AUD/USD trends will hinge on the RBA Financial Stability Review on Thursday and Friday’s US Personal Income and Outlays Report.

Concerns about financial stability and the latest inflation figures could further fuel expectations of a Q4 2024 RBA rate cut. However, softer US inflation and weaker personal income/spending could fuel bets on multiple Q4 2024 Fed rate cuts, supporting an AUD/USD move toward $0.70.

Investors should closely monitor central bank signals and economic indicators, which will likely influence AUD/USD trends. Monitor the real-time data, news updates, and expert commentary to adjust your trading strategies.

AUD/USD Technical Analysis

Daily Chart Highlights AUD/USD Breakout

The AUD/USD holds comfortably above the 50-day and 200-day EMAs, following Tuesday’s breakout, affirming the bullish price signals.

A breakout from the morning high of $0.69081 could give the bulls a run at $0.69500. Furthermore, a return to $0.69500 may signal a move toward the $0.70 level.

Traders should consider central bank commentary and US economic indicators, as these will affect AUD/USD price movements.

Conversely, a drop to the $0.68500 level could give the bears a run at the $0.68006 support level. A break below the $0.68006 support level may signal a fall toward the $0.67500 level.

With a 14-period Daily RSI reading of 69.20, the Aussie dollar could return to the morning high of $0.69081 level before entering overbought territory.