AUD/USD Outlook: Dollar Reverses on Fed Dovish Outlook

• Initially, the greenback rose due to rising tensions in the Middle East.

• Markets are pricing in a 59% higher chance of a massive Fed tapering in November.

• All eyes are on the US core PCE price index due on Friday.

The AUD/USD outlook points to increased bullish optimism as the dollar loses ground on heightened expectations of a Fed rate cut. Meanwhile, the Australian dollar rose despite data showing weaker job demand.

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Initially, the greenback rallied as rising tensions in the Middle East prompted investors to buy the safe-haven currency. The conflict between Hezbollah and Israel in Lebanon has escalated, raising fears of a wider war. The two groups fired missiles at each other on Wednesday, dampening risk appetite.

However, market participants continued to pay attention to Fed rate cut bets. According to futures markets, there is a greater than 59% chance that the US central bank will cut interest rates by 50bps at the November meeting. Such a favorable outlook is bearish for the dollar, allowing the AUD/USD pair to rise.

All eyes are now on the US PCE core price index due on Friday. It’s a key measure of inflation for the Fed and could affect future policy moves. Economists expect inflation to rise by 0.2%, as in the previous month. A lower than expected number will encourage low rate betting. On the other hand, a jump could lower expectations for a massive cut and raise expectations for a smaller one.

Meanwhile, in Australia, job openings in the three months to August fell as demand for labor cooled. Vacancies fell 5.2% after the last reading showed a 3.5% drop. The report could add pressure on the RBA to consider short-term rate cuts.

Key AUD/USD events today

• Final US GDP t/t
• US Jobless Claims
• Fed Chairman Powell speaks

AUD/USD Technical Outlook: RSI pauses as bulls make higher highs

Technically, the AUD/USD price is rising after failing to trade below the 30-SMA. The upside bias remains strong, with price above the SMA and RSI above 50.

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However, while the price is rising, the RSI has stagnated. This is a sign that bulls may be tired. Therefore, it may fail to push the price above the 0.6900 resistance. That would create a double top that could lead to a reversal. However, if there is an increase in momentum, the price is likely to make a new high above 0.6900.

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