Chapter 10 09/26 AUDUSD: With a Focus on August Inflation Data, Is the Multi-Week Stalemate between Bulls and B
Abstract: Australia's core CPI inflation rate in August will be announced on Wednesday. At present, the market expects the inflation rate to rise from 4.9% to 5.2%. If it meets expectations, it will support the Reserve Bank of Australia (RBA) to raise interest rates in October, but the threshold for raising interest rates seems to be very high.
Fundamentals
Australia's August CPI data will be released on Wednesday, which may bring some uneasiness to the discussion of interest rate prospects. At present, the market expects the CPI annual rate to rise from 4.9% in July to 5.2% in August, thus ending the recent steady downward trend and triggering discussions on further interest rate hikes before the end of the year.
Admittedly, the rising WTI crude oil price and the weakening of the AUD in August mean that the fuel price has increased by about 10% month-on-month, so these two factors alone should increase the inflation rate by about three-tenths. In addition, the increase of alcohol tax twice a year will also have an impact, and the insurance price has been growing steadily; Despite this, the RBA has linked the change of policy interest rate with the change of forecast, but the threshold for raising interest rate in October seems to be very high.
If the imbalance between supply and demand is resolved, Australia's basic inflation rate in the second quarter will be basically consistent with the target of the RBA. However, it is not entirely clear whether the inflation rate will be within the target range of 2%-3% of the RA when the impact of the earlier supply shock dissipates and the labor market relaxes. It is estimated that the long-term average inflation affected by economic weakness and supply shocks shows that the RBA is on the right path. Over time, the austerity policy should be able to successfully cool down the inflation in the service industry.
Technical Analysis
The Federal Reserve kept interest rates unchanged and hinted that it would raise interest rates again before the end of the year, and may keep interest rates high until 2024. This position triggered a new risk aversion, prompting investors to buy USD and causing the AUD to fall. The AUDUSD fell 0.6400, or 0.50%, in Tuesday's trading, continuing the decline after the Fed meeting.
In the past month, the AUDUSD has been moving horizontally around the key support trend line, increasing the hope of a bullish adjustment around 0.6400. A decisive rebound to the 0.6500 level and above the 50-day SMA will boost market sentiment.
However, after the AUDUSD's strong upward momentum was rejected last Wednesday, the technical structure in the 1D timeframe is weakening, because the new accelerated decline has shattered the bullish pattern. It has returned to a bearish pattern in the 1D timeframe, and the Relative Strength Index has fallen into a negative area, leading to negative signals in the near future.
Now, the daily close must be below the 10-day SMA at 0.6426 to keep the bears intact and the chances of a renewed strike on the recent bottom at 0.6360. A break below this level would mark the end of a multi-week bull-bear battle. It is recommended to go short at the highs.
Trading Recommendations
Trading direction: Short
Entry price: 0.6470
Target price: 0.6210
Stop loss: 0.6552
Deadline: 2023-10-09 23:55:00
Support: 0.6380, 0.6357, 0.6272, 0.6210
Resistance: 0.6426, 0.6452, 0.6484, 0.6511
