Market update: Australian dollar looks to recoup losses ahead of CPI; AUD/USD, AUD/NZD, AUD/JPY

AUD seeks positive catalysts

The Australian dollar is looking for positive catalysts as it attempts to recoup some of its recent losses ahead of key Australian inflation data due Wednesday. 

Australia's CPI moderated to 5.2% on-year in July from 5.4% previously. The ongoing disinflation trend is in tandem with the Reserve Bank of Australia’s view that the worst is probably over for inflation.

The Australian central bank held rates steady at 4.1% at its previous two meetings, and markets are pricing in a high chance that the central bank will stay pat when it meets next week amid tentative signs of cooling of the labour market and a deteriorating growth outlook in China. 

Struggling China not helping AUD

Chinese policymakers’ additional stimulus in recent days has failed to cheer AUD bulls so far. China’s macro data continues to be underwhelming, posing downside risks to the economic growth outlook amid a struggling property sector.

With a massive stimulus seemingly off the table (given the associated risks of creating imbalances within the economy), AUD would need to rely on other catalysts to get a boost.

The China Economic Surprise Index is just off mid-2020 (Covid levels), and China is Australia’s largest export destination.

AUD/USD daily chart

US economy resilient

Globally, the USD remains well supported by diverging economic outlooks – a resilient US economy compared with slowing growth outside of the US, especially in China and Europe.

Powell’s remarks at Jackson Hole last week were largely balanced, but with a slightly hawkish tilt, offering some support to the greenback. The market is now pricing in about a 50% chance of a November hike compared with 38% a week ago, according to the CME FedWatch tool. 

AUD/USD weekly chart

AUD/USD: downtrend fatigue?

Tentative signs of downtrend fatigue are setting in AUD/USD lower timeframe charts. This comes as the pair continues to hold above vital converged support on the median line of a declining pitchfork channel since June and a downtrend line from the end of 2023.

Still, a break above Friday’s high of 0.6440 is needed for the on-month-long slide to stall. A more decisive signal for any material consolidation would be a crack above last week’s high of 0.6590.

AUD/USD 240-minute chart

AUD/JPY: Downward bias yet to reverse 

AUD/JPY has been well guided lower by the downward-sloping 200-period moving average on the 240-minute charts, a bias highlighted in the previous update.

While a hold above horizontal trendline support at about 93.00 is an encouraging sign for bulls, the cross needs to clear 94.00-95.00, including the 200-period moving average and the mid-August high for the bearish pressure to fade. 

AUD/JPY 240-minute chart

AUD/NZD: Starting to flex muscles

The recent pickup in upward momentum could be a sign that AUD/NZD is beginning to flex muscles after months of remaining directionless. This follows a repeated hold above quite strong support on the lower edge of a rising channel since April. A break above the initial barrier at the July high of 1.0925 could open the way toward the June high of 1.1050. 

AUD/NZD daily chart

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