The AUD/USD weekly outlook has recently reached a 19-month high, closing above 0.69 for the first time since February 2023. This rally was largely driven by positive US economic data, with upgraded GDP figures and softer-than-expected inflation. However, despite this surge, the question remains: Can the Aussie maintain its strength?
The US economy continues to support a risk-on tone, which has favored the Australian dollar. US Q2 GDP was revised to 3%, surpassing expectations. Additionally, core PCE inflation rose only 0.1%, below the 0.2% forecast. These factors helped push the Dow Jones to a record high, indirectly boosting the AUD/USD to its current peak.
As we move forward, US data will likely dominate the narrative again, with reports on manufacturing, services, and nonfarm payrolls set to be released. If these figures outperform expectations, they could limit further gains for the AUD/USD. Conversely, weaker-than-expected data might provide a chance for the Aussie to rise further.
On the domestic front, Australia's inflation has cooled, with the CPI falling within the Reserve Bank of Australia’s (RBA) target band for the first time in three years. However, core inflation, particularly the trimmed mean, remains at 3.4%, which the RBA considers too high. As a result, the 4.3% cash rate is expected to stay in place, limiting further upward pressure on the Aussie.
Australian retail sales data, due this week, will offer insights into consumer resilience in the face of high interest rates. While overall sales have softened, they are not yet signaling a recession. A weak figure may weigh on the AUD, though the market might largely shrug it off unless the data is particularly poor.
Technically, the US dollar index remains above the critical 100 level despite recent Fed cuts and softer inflation. This indicates that the AUD/USD rally could be nearing its peak. Traders should watch for a potential pullback toward 0.6820, especially if US data surprises on the upside. With China’s National Day holiday reducing trading volumes in Asia, we may see more volatile moves during this period.
As we approach Q4, seasonal trends could support a stronger Aussie dollar. If the AUD/USD can hold above the 0.69 level, a move toward 0.70 is possible. However, traders should remain cautious, especially as global economic data continues to evolve.
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