Australian dollar extends gains on solid data

The Australian dollar continues to rally and has climbed above the 0.69 level for the first time in September. AUD/USD has gained 150 points since Thursday, as the US dollar continues to lose ground.

Australia released key confidence indicators earlier today, and the decent numbers gave the Aussie a slight push higher. NAB Business Confidence climbed to 10 in August, marking a 4-month high. This was up from 7 and above the forecast of 6 points. NAB Business Conditions remained steady at 20, shy of the estimate of 27 points. Westpac Consumer Sentiment for September bounced back with a strong 3.0% gain, crushing the forecast of -0.3% and recovering from the -3.0% read in August. The rebound is somewhat surprising, as it was the first gain since November 2021 and the RBA just raised interest rates. The survey noted that consumer confidence still remains low, at 84.4. Perhaps the drop in gasoline prices gave a jolt to consumer optimism.

Next up is the Australian employment report on Thursday. The market consensus stands at 35.0 thousand for August, which would be a huge rebound after the -40.9 thousand reading in July. A strong release will make it easier for the RBA to remain aggressive as it continues to battle inflation.

US inflation next

It could be a busy day for the markets, with the US releasing August inflation later today. Headline CPI is expected to drop for a second straight month, from 8.5% to 8.1%, driven by lower gas prices. Core CPI, however, is expected to rise to 6.1%, up from 5.9%. If headline CPI does fall, it would mark a second straight decline, and likely lead to some headlines proclaiming that inflation has peaked. However, Fed Chair Powell has said loud and clear that the Fed will pursue its aggressive stance, even if one or two inflation reports show declines. The markets were exuberant after the unexpected drop in July inflation, sending the US dollar sharply lower. Since then, investors appear to have internalized that the Fed is not about the reverse policy, and I don’t expect a repeat performance from the US dollar, even if inflation is lower than expected.

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AUD/USD Technical

• AUD/USD has support at 0.6807 and 0.6737
• There is weak resistance at 0.6915, followed by resistance at 0.6985

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