AUD/USD Price Analysis: Australia’s CPI falls as expected

• Australia’s consumer price index report showed inflation rose 2.7%.

• RBA policymakers said they would look beyond a drop in headline inflation.

• Data on Tuesday showed an unexpected drop in US consumer confidence.

AUD/USD price analysis shows a slight pullback in the bullish trend after a drop in Australian inflation increased the likelihood of an RBA rate cut. Meanwhile, the US dollar was weak after data from the previous session revealed growing concerns about the labor market.

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Australia’s consumer price index report showed inflation rose 2.7 percent, a three-year low, in August. Moreover, it was a significant drop from the previous month’s reading of 3.5%. However, the Aussie dollar barely edged lower as economists had expected a decline. It did, however, improve the odds of an RBA rate cut in December to 75%.

The Reserve Bank of Australia recently kept rates unchanged and noted it was too early to consider rate cuts. In addition, policymakers said they would look beyond a drop in headline inflation, which was only temporary. Therefore, more is needed to determine a more hawkish outlook as core inflation remains high. In particular, price pressures eased in August due to electricity subsidies from the federal government. The RBA will come under more pressure to reduce borrowing costs if core inflation falls.

Meanwhile, the greenback remained weak after Tuesday’s data showed an unexpected drop in consumer confidence. The Conference Board’s consumer confidence reading fell from 105.6 to 98.7 in September. Several consumers expressed concern about the job market, noting that it was harder to get jobs.

In addition, market participants are eagerly awaiting the core PCE numbers due on Friday. Higher-than-expected inflation could fuel expectations for a massive Fed rate cut in November.

Key AUD/USD events today

Market participants do not expect any key report from the US. They will therefore continue to digest Australia’s CPI report.

AUD/USD Price Technical Analysis: Bulls Stop at 0.6900

Technically, the AUD/USD price broke its rally near the key 0.6900 level. Although it is receding, the bullish trend remains strong. The price is still trading well above the 30-SMA and the RSI is close to the overbought region.

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However, after such a strong rally, the bulls look exhausted. The RSI made a bearish divergence, showing weaker bullish momentum. Therefore, the price could pull back to retest the 30-SMA before making new highs. However, if the bears challenge the SMA support and win, AUD/USD is likely to start falling.

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