Australian Dollar maintains position ahead of Michigan Consumer Sentiment Index

• The AUD/USD pair appreciates as US data reinforce the likelihood of an aggressive Fed rate cut next week.
• The US Producer Price Index rose above expectations, driven by higher service costs.
• Fed is expected to deliver a 25-basis points interest rate cut at its September meeting.

The AUD/USD extends its upside for the third successive session on Friday as economic data from the United States (US) reinforced the possibility that the Federal Reserve (Fed) could lower interest rates by 50 basis points next week.

The US Labor Department reported that Initial Jobless Claims for the previous week increased as anticipated, surpassing the previous week’s figures. Additionally, US factory inflation rose above expectations, driven by higher service costs. Investors shift their focus to the Michigan Consumer Sentiment Index, which is scheduled for Friday.

According to the CME FedWatch Tool, markets are fully anticipating at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting. The likelihood of a 50 bps rate cut has sharply increased to 41.0%, up from 14.0% a day ago.

The Australian Dollar (AUD) received support as the Reserve Bank of Australia (RBA) Governor Michele Bullock has maintained a hawkish outlook, saying last week that it is too soon to consider rate cuts as inflation remains too high.

Daily Digest Market Movers: Australian Dollar extends upside due to improved risk sentiment

• The US Producer Price Index (PPI) rose to 0.2% month-on-month in August, exceeding the forecasted 0.1% increase and the previous 0.0%. Meanwhile, core PPI accelerated to 0.3% MoM, against the expected 0.2% rise and July’s 0.2% contraction.
• US Initial Jobless Claims rose slightly higher for the week ended September 6, increasing to the expected 230K from the prior 228K reading.
• The former Reserve Bank of Australia (RBA) Governor Bernie Fraser criticized the current RBA Board for being overly focused on inflation at the expense of the job market. Fraser suggested that the Board should lower the cash rate, warning of “recessionary risks” that could have severe consequences for employment.
• Australia’s Consumer Inflation Expectations eased to 4.4% in September, down slightly from August’s four-month high of 4.5%. This decline highlights the central bank’s efforts to balance bringing inflation down within a reasonable timeframe and maintaining gains in the labor market.
• The US Consumer Price Index dipped to 2.5% year-on-year in August, from the previous reading of 2.9%. The index has fallen short of the expected 2.6% reading. Meanwhile, headline CPI stood at 0.2% MoM.
• US core CPI ex Food & Energy, remained unchanged at 3.2% YoY. On a monthly basis, core CPI rose to 0.3% from the previous 0.2% reading.
• The first US presidential debate between former President Donald Trump and Democratic nominee Kamala Harris in Pennsylvania was won by Harris, according to a CNN poll. The debate began with a critical focus on the economy, inflation, and economic policies.
• On Wednesday, Sarah Hunter, the Reserve Bank of Australia’s (RBA) Assistant Governor for Economics, remarked that high interest rates are suppressing demand, which is expected to lead to a mild economic downturn. Hunter also pointed out that the labor market remains tight relative to full employment levels, with employment growth projected to continue, though slower than population growth, according to Reuters.

Technical Analysis: Australian Dollar moves above 0.6700, nine-day EMA

The AUD/USD pair trades near 0.6730 on Friday. Technical analysis of the daily chart indicates that the pair has broken above the descending channel, signaling a weakening bearish bias. Additionally, the 14-day Relative Strength Index (RSI) has moved above the 50 level, suggesting a shift in momentum from a bearish to a bullish trend.

On the upside, the AUD/USD pair may explore the region around its seven-month high of 0.6798, aligned with a psychological level of 0.6800.

On the downside, the AUD/USD pair could find immediate support around the upper boundary of the descending channel near 0.6720, followed by the nine-day Exponential Moving Average (EMA) at 0.6707 level.

A return to the descending channel would reinforce the bearish bias and lead the pair to navigate the region around the lower boundary of the descending channel around 0.6600, followed by the throwback support zone near 0.6575.

AUD/USD: Daily Chart