The Australian dollar eased against the US dollar after US consumer inflation data arrived in line with expectations, trimming appetite for near-term US rate tightening. AUD/USD slipped to 0.7061, down 0.07%. US CPI for July slowed to 3.4% from 3.5%, while core inflation eased to 2.5%, 0.1 percentage points below June, extending the recent disinflation trend. Money markets repositioned for September, shifting from a 60% expectation of a hike to a 60% probability of a hold, according to Prime Terminal.
Attention turns to Australia’s August Consumer Inflation Expectations release after the prior 4.7% reading. The Reserve Bank of Australia left the cash rate unchanged at 4.40% on 11 August, and pricing for the 29 September meeting implies a 79% chance of no change alongside a 21% probability of a 25-basis-point rise, according to Prime Terminal. Technically, AUD/USD holds above 0.6992 and 0.6953, with the RSI (14) near 59; resistance levels sit at 0.7274 and 0.7294, with further targets at 0.8377 and 0.9068, while longer-term support is flagged at 0.6403.
Market Volatility and Policy Expectations
we should prepare for increased volatility in AUD/USD as we navigate a delicate balance between shifting US Federal Reserve expectations and upcoming Australian inflation data. With the US CPI annual rate easing to 3.4% and the core print dropping to 2.5%, the immediate pressure on the Federal Reserve has softened, shifting market sentiment toward a rate hold in September. However, derivative traders must closely monitor geopolitical developments, particularly in energy markets, as any supply disruptions could quickly reignite global inflationary pressures.
Australian Outlook and Technical Levels
In Australia, the focus shifts to the upcoming Consumer Inflation Expectations release, which previously stood at 4.7%. If the incoming data exceeds this benchmark, we expect it to trigger aggressive bets on an RBA rate hike, despite the central bank holding rates at 4.40% at its August 11 meeting. Recent trade data supports a cautious but supportive backdrop for the Aussie, with Australia’s trade surplus remaining resilient at approximately A$5.4 billion, sustained by steady demand for resources.
From a technical standpoint, we should look to establish long positions if AUD/USD holds above the key breakout support level at 0.6992. The Relative Strength Index at 59 suggests there is still room for upward momentum before the pair becomes overbought. If this support level breaks, we should pivot toward defensive strategies, targeting the next major support zone near 0.6953.
