The US Dollar falls as US Treasury yields continue to slide.
Australia will release consumer inflation data for October early Wednesday.
The AUD/USD remains bullish despite technical indicators showing overbought readings.
The AUD/USD rose as high as 0.6665, its highest level in three months, and then pulled back to find support above 0.6630. The weaker US dollar was the main driver behind the move. The focus now shifts to Australian inflation data.
Data released on Tuesday showed that Australian retail sales fell 0.2% in October, versus expectations for a 0.1% increase. The annual rate slowed from 2% to 1.2%, the lowest since August 2021. Reserve Bank of Australia (RBA) Governor Michele Bullock warned that services inflation is sticky and that they have seen more modest price pressures than expected. Markets do not expect another hike at the next meetings.
Key information is due on Wednesday with the release of the monthly CPI. The annual rate is expected to decline from 5.6% to 5.2%. The Reserve Bank of New Zealand’s decision will also be relevant.
On Tuesday, the U.S. Dollar retreated, adding to its current negative momentum, after comments from Federal Reserve (Fed) Governor Christopher Waller, who stated that there is no reason to insist that interest rates need to remain high if inflation continues to decline. He was talking about the future. A few minutes later, the Fed’s Michelle Bowman said she remains willing to support further rate hikes if progress on inflation stalls. On Wednesday, the US will report a new reading on Q3 growth and the Fed will release its Beige Book.
Despite the numbers and comments, the US Dollar remains under pressure, pushing the AUD/USD higher. The trend is still in place and could continue as long as Treasury yields continue to fall and the market narrative is that the Fed is done raising rates.
The daily chart shows that the pair has pulled back a bit from its fresh highs. At the same time, the Relative Strength Index (RSI) is rising above 70, warning of overbought conditions. This may indicate a pause before another leg higher. The bias is still to the upside, and the price is above its main Simple Moving Averages.
In the 4 hour chart, the pair is moving with a clear bullish bias. However, the Relative Strength Index is overbought and pointing south. The Momentum is flattening and the MACD is not giving a clear signal. A correction may take place towards the immediate support at 0.6625. Even if it extends to 0.6595, the trend is still on track for new highs. On the contrary, if it rises again and stays above 0.6650, it will strengthen. Expect rising resistance at 0.6665.