The Australian Dollar rebounds slightly as traders await the release of U.S. CPI data

The Australian Dollar (AUD) is trading positively on Thursday, breaking a five-day losing streak. However, the stronger U.S. Dollar (USD) driven by increasing speculation about a 25 basis point (bps) rate cut by the Federal Reserve (Fed) in November could weigh on the Aussie in the near term. Additionally, Beijing's lack of further stimulus measures to boost the world's second-largest economy has disappointed investors, particularly as China's sluggish economic performance often negatively impacts the AUD due to the close trading relationship between Australia and China.

Investors are keenly awaiting the U.S. Consumer Price Index (CPI) inflation data, set to be released later on Thursday. The headline U.S. CPI is anticipated to show a 2.3% year-over-year increase for September, while the core CPI is expected to rise by 3.2% year-over-year. If the CPI report comes in softer than expected, it could pave the way for a substantial Fed rate cut, potentially weakening the USD and limiting any downside pressure on the AUD/USD pair.

Daily Digest Market Movers: Australian Dollar Gains Momentum Ahead of U.S. CPI Data

• Minutes from the Reserve Bank of Australia (RBA) September meeting indicated that board members dismissed the idea of immediate rate cuts, opting instead to keep their options open and assess whether the economy picks up in the latter half of the year.
• Analysts at ANZ noted, “This leaves the door open to a shift to neutral by the end of this year, with easing possible in early 2025. We continue to expect the first cash rate cut in February 2025.”
• The World Bank recently forecasted that China’s growth rate will slow to 4.3% in 2025, down from an estimated 4.8% this year, highlighting ongoing concerns about China’s economic health.
• Meanwhile, San Francisco Fed President Mary Daly indicated on Wednesday that one or two more rate cuts could happen this year if the economy develops as expected, expressing confidence that inflation is trending towards the Fed's 2% target.
• Boston Fed President Susan Collins also noted that weakening inflation trends make further interest rate reductions probable.
• Market sentiment has shifted significantly, with the CME FedWatch Tool indicating nearly 80% odds of a 25 basis point rate cut in November, up from 31.1% last week.

Technical Analysis: Australian Dollar Remains Vulnerable Near Key Support Level

Despite the day's gains, the bullish outlook for the AUD/USD pair appears fragile as it hovers around the lower boundary of the ascending trend channel and the key 100-day Exponential Moving Average (EMA) on the daily chart. If AUD/USD falls below these levels, a resumption of the downside trend could be expected. This downward momentum is supported by the 14-day Relative Strength Index (RSI), currently positioned below the midline at 41.20.

The critical support level for AUD/USD is at 0.6700, coinciding with the lower trend channel limit, the 100-day EMA, and a significant psychological level. A breach of this support could lead to a decline towards 0.6622, which represents the low from September 11.

Conversely, the September 6 high of 0.6767 serves as an immediate resistance level for the pair. If the price breaks through this barrier, the next resistance is seen at 0.6823, the high from August 29, followed by 0.6942, the high from September 30.