AUD/USD Set to Challenge Key Level of 0.6500

News Summary: The AUD/USD currency pair is poised for a significant test of the 0.6500 support level as the U.S. dollar gains strength post-CPI report amid a cautious Australian economic outlook.

　　Lead: The AUD/USD pair, currently trading at 0.6521, is approaching a critical support area of 0.6500 following a brief uptick in the US dollar, triggered by the release of the U.S. Consumer Price Index (CPI) for July on Thursday, which revealed annual inflation at 3.2%—above June's 3% but below expectations of 3.3%.

　　Main Body:

　　The U.S. dollar resumed its upward trajectory after an initial slide following the CPI report, which indicated that while inflation was increasing, it remained supportive of disinflation trends. This pressure on the Australian dollar comes as market sentiment remains cautious, particularly regarding the economic situation in Australia influenced by recent data regarding inflation expectations.

　　The AUD/USD pair experienced a decline from a recent high of approximately 0.6620, falling sharply to the 0.6520 area, reinforcing a bearish sentiment. The stronger U.S. dollar, which is being driven by higher Treasury yields, played a significant role in pushing the pair lower late Thursday.

　　The CPI data released for July showed an annual inflation rate of 3.2%. While this marked the first acceleration in inflation over a year, it was still perceived as supportive of the Federal Reserves disinflationary goals. Analysts noted that the report presented a picture reminiscent of pre-pandemic environments, underscoring the complexities of the current economic landscape.

　　Additionally, the release of initial jobless claims showed an unexpected rise, with claims increasing to 248,000 compared to the market consensus of 230,000. This scenario indicates a potential softening in the labor market, adding further uncertainty to economic forecasts.

　　Post-CPI, the U.S. dollar reversed its earlier losses and gained ground after the market opened in New York, leading to a mixed reaction in equity prices and a rebound in Treasury yields from their weekly lows.

　　Looking ahead, more U.S. inflation data is expected to be released, including the Producer Price Index (PPI) and the University of Michigan's Consumer Confidence report. Such data will serve as critical indicators for the economic outlook and could further influence the AUD/USD pair's trajectory.

　　In regard to Australia, recent data from the Melbourne Institute indicated a decrease in consumer inflation expectations from 5.2% to 4.9%. Despite this positive signal, the Australian dollar remains under pressure, particularly amidst a backdrop of disappointing inflation figures from China released earlier in the week.

　　As traders await the further economic data from the U.S. and Australia, the dynamics of the U.S. dollar are expected to remain a key driver for the AUD/USD pair. With no new economic data scheduled from Australia, market sentiment may continue to propel the AUD lower, especially if the pair consolidates below the key support level of 0.6495.

　　Technical Analysis:

The technical outlook for the AUD/USD pair suggests that after peaking at 0.6618, a significant drop of nearly 100 pips has ensued. Indicators on the daily chart reveal no clear indications of a reversal, and with prices remaining below critical simple moving averages (SMA), the bearish bias persists.
On the 4-hour chart, the pair has retreated below the 20-SMA and is testing the intermediate support level of 0.6520. A decisive break below this level is expected to lead to a test of the psychological support level at 0.6500. Should the pair consolidate below 0.6495, this may accelerate declines toward initial targets of 0.6485 and then the year-low of 0.6458.
Conversely, should the AUD recover and exceed 0.6550, this will alleviate some bearish pressure and may indicate sideways price action around that level. Longer-term, the outlook for the Australian dollar would benefit from consolidating above the 0.6600 mark.

　　Support and Resistance Levels:

Support Levels: 0.6520, 0.6490, 0.6460
Resistance Levels: 0.6540, 0.6570, 0.6620

　　Conclusion:

　　With the AUD/USD pair testing the pivotal support level of 0.6500, traders and investors will closely monitor upcoming U.S. economic indicators for potential insights on inflation trends and the Federal Reserve's policy directions. The current economic climate, marked by cautious sentiment in Australia and strengthening momentum for the U.S. dollar, implies that fluctuations in market sentiment will be critical for the AUD/USD pair in the near term. Traders should remain vigilant as further data is set to impact market dynamics significantly.

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