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Abstract: On Wednesday, the AUD continued its decline, with an overall decline of 1% this week. During the European session, the AUDUSD reported 0.6365, a decrease of 0.38%; Meanwhile, it is dangerously close to an 11-month low of 0.6357. It is expected that the downward trend will continue in the later period.

Fundamentals

According to the data released by the Australian Bureau of Statistics (ABS), the inflation rate in August rose by 5.2% year-on-year, higher than the 4.9% in July, which was in line with market expectations. This marks the first acceleration of inflation since April, largely due to the rise in fuel prices, which also led to the monthly inflation rate rising from 0.3% in July to 0.8%.

The key core inflation indicator fell to 5.5% year-on-year, down from 5.8% in July.

It is also worth noting that the average monthly index revision is 5.6%, which is the same as that in July, so it is still slower than the peak of 7.2% in December 2022. This also shows that there are some upside risks in our current revised average forecast, which was 4.7% in the September quarter.

On an annual basis, housing (6.6%), transportation (7.4%), food and non-alcoholic beverages (4.4%), and insurance and financial services (8.8%) contributed the most to the growth in August.

ABS pointed out that the housing inflation rate this year was 6.6%, which was lower than the inflation rate in July (7.3%). The price of new housing rose by 4.8% year-on-year, the lowest annual increase since August 2021, and the price increase of building materials continued to slow down, reflecting the improvement of the supply situation. Due to the continuous tightening of the rental market, the annual growth rate of rent is 7.8%, slightly higher than the annual growth rate of 7.6% in July.

The inflation data did not have much impact on the market. It is widely expected that the Reserve Bank of Australia (RBA) will suspend interest rate hikes for the fourth time in October. The market regards the rise in inflation as a temporary phenomenon and predicts that the overall downward trend will continue, and it is expected to raise interest rates in May 2024.

The RBA will hold a meeting next week, which is the first meeting since Bullock took over as chairman of the RBA. Bullock stressed that the door to further interest rate hikes is open, and the interest rate decision will depend on the data. This position is not surprising, because the RBA does not want to declare that interest rates have peaked when inflation is still far above the 2% inflation target. I expect the RBA to reiterate this view at the meeting.

Technical Analysis

On Wednesday, despite strong Australian inflation data supporting expectations of further rate hikes by the RBA, the AUDUSD failed to capitalize on the upbeat inflation data to achieve the expected move higher as the market digested the RBA's decision to continue to pause on rate hikes, instead the rising USD continued to push the AUDUSD dangerously close to 11-month lows at 0.6357. Downward pressure continues to build.

In the 4H timeframe, the AUDUSD fell below 0.6440 and accelerated after 100SMA. If the price is supported near the 11-month low of 0.6357, the recovery may face resistance of 0.6425 and 100 SMA. The second main resistance lies in the range of 0.6440 and near 200 SMA. At present, the main resistance level is formed around 0.6450. The closing price above 0.6450 may rise steadily to 0.6500.

On the downside, the next key support is around 0.6385, below which 0.6357 may be tested. If it falls below 0.6357, any more losses may cause the AUDUSD to slide into the range of 0.6200.

Overall, as stated in our strategy over the past few weeks, the AUDUSD will continue to maintain bearish trading until our desired target is met. It is recommended to go short at the highs.

Trading Recommendations

Trading direction: Short

Entry price: 0.6450

Target price: 0.6210

Stop loss: 0.6550

Deadline: 2023-10-11 23:55:00

Support: 0.6380, 0.6357, 0.6272, 0.6210

Resistance: 0.6426, 0.6452, 0.6484, 0.6511