Australian Dollar in the spotlight ahead of the monthly CPI report. What’s next?

FUNDAMENTAL
OVERVIEW

USD:

The US dollar weakened
across the board on Friday after the US Supreme Court struck down Trump’s
reciprocal tariffs. The resulting policy uncertainty is what is likely to have
weighed on the greenback, even though nothing has actually changed.

Trump has already imposed
new tariffs under a different law and USTR Greer has stated that the tariff
deals remain in place and they will be honoured. Moreover, the new levies
actually reduce the effective average tariff rate.

The dollar recouped most of
the losses yesterday, but it might remain rangebound for now as traders await
new catalysts and further developments. The real risks remain a potential
US-Iran military escalation which could boost the greenback on severe risk-off
mood or a hawkish repricing on stronger US data which would have a positive
effect on the USD. Fed’s Waller placed a great deal on next week’s NFP report.

AUD:

On the AUD side, the bullish
momentum from the hawkish repricing of last month seems to have waned now. The
currency remains supported on a hawkish central bank and strong data, but we
will likely need stronger reasons to price in more rate hikes at this point.

Tomorrow, we get the monthly
Australian CPI report. We will likely need very hot data to give the AUD
another boost as traders would bring forward expectations for the next rate
hike. Last week, the currency failed to sustain a rally on another strong jobs report which might have been a
signal that we reached the peak in the hawkish repricing, and a major pullback could
be in the cards. A soft CPI report could trigger such a correction.

As a reminder, the RBA
hiked the Cash Rate by 25 bps at the last meeting bringing it back to 3.85%. The
central bank delivered a hawkish surprise as it signalled two more rate hikes
by year-end compared to just one expected by the market at the time.

AUDUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME

On the daily chart, we can
see that AUDUSD broke below the first upward
trendline which could be a signal of further downside to follow. From a risk
management perspective, the buyers will have a better risk to reward setup
around the next trendline to position for a rally into new highs. The sellers,
on the other hand, will look for a break lower to extend the drop into the major
trendline around the 0.67 handle.

AUDUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME

On the 4 hour chart, we can
see that the price has been consolidating between the 0.7090 resistance and the
0.7027 level. The market participants will likely continue to play the range
until we get a breakout on either side.

AUDUSD TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME

On the 1 hour chart, there’s
not much else we can add here as the sellers will likely pile in around the
resistance and on a break below the support, while the buyers will step in
around the support and increase the bullish bets on a break above the
resistance. The red lines define average daily range for today.

UPCOMING CATALYSTS

Today we have the weekly US ADP jobs data. Tomorrow, we have the monthly Australian
CPI report. On Thursday, we get the latest US Jobless Claims figures. On
Friday, we conclude the week with the US PPI report. Watch out for US-Iran
headlines.