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The Australian dollar hit its highest level since December 2023 against the US dollar, briefly topping 0.6800 following the release of the monthly inflation report.

The Australian Bureau of Statistics reported that consumer price growth slowed to 3.5% y/y in July from 3.8% the previous month. Despite the slowdown, this indicator was higher than the expected 3.4%, further reducing the chances of a quick monetary policy reversal. Key drivers were housing costs (4%), food and non-alcoholic beverages (3.8%) and tobacco and alcohol (+7.2%).

Australia also took measures to combat rising house prices by restricting the number of international students. In addition, electricity bill rebates were resumed in July (-5.1% y/y vs. +7.1% y/y in June). With these measures in place, inflation looks resilient.

This is good news for the Australian currency, which has rebounded impressively since the sell-off in early August. The RBA’s hawkish tone, higher inflation, and a rebound in global risk appetite have contributed to the recovery.

The AUDUSD is testing the upper boundary of its 18-month trading range near 0.6800. In early August, the 0.6350 area reaffirmed its role as the turning point from decline to growth, as it has done over the last two years. The focus now is on whether the Aussie can break out of its long consolidation by breaking through a key resistance level.

This move could be an important indicator of a recovery in risk appetite and a resumption of the carry trade to which the Australian currency is sensitive. It could also signal a global shift in the dollar’s trading regime, sending it in search of a lower bottom.

The Australian dollar continues to have a quiet week. AUD/USD is trading at 0.6796 in the European session, up 0.06% on the day at the time of writing.

Australian CPI dips to 3.5%

Australia’s inflation rate continued to decelerate in July, although the markets were hoping for more. CPI rose 3.5%, down from 3.8% in June but above the market estimate of 3.4%. This was the lowest figure since March but much of the decline was driven by electricity rebates which artificially lowered electricity prices.

Core inflation eased but goods inflation remained flat. The markets weren’t impressed with the inflation data and the odds of a rate cut in November fell to 48%, down from 58% prior to the inflation release.

The markets are more dovish than the Reserve Bank of Australia, which has discussed raising rates at recent meetings. The central bank is not satisfied with the pace of underlying inflation and has projected that it won’t return to the target band of 2% to 3% until the end of 2025. Governor Bullock has said that the Bank has no plans to cut for at least six months, but the markets are betting that the RBA won’t stay on the sidelines while the Fed and other major central banks are lowering rates.

The financial markets are hanging onto every word from FOMC members and we’ll hear from members Christopher Waller later today and Rafael Bostic early on Thursday. As well, the US releases second estimate GDP for the second quarter on Thursday.

The initial estimate showed the economy powering ahead with a 2.8% gain, double the 1.4% pace in Q1. The second estimate is expected to confirm the initial reading and confirm that the economy remains in solid shape, despite concerns about a weak employment labor which led to a market meltdown earlier this month.

AUD/USD Technical

• AUD/USD is testing support at 0.6784. Below, there is support at 0.6771
• 0.6805 and 0.6818 are the next resistance lines

Oil price declines for the second straight day after recent three-day strong recovery rally was repeatedly rejected just under 200DMA ($77.80).

Subsequent weakness generated reversal signal following a break below pivotal support at $74.51 (50% retracement of $71.46 / $77.57 recovery leg, reinforced by 10DMA).

Daily studies weakened (MA’s are back to full bearish setup and 14-d momentum dipped to negative territory) adding to downside risk.

Quick change in the sentiment from increasingly bullish (on Libya supply concerns and geopolitical tensions) to negative, was mainly influenced by growing demand worries and elevated risk of broader economic slowdown.

This signals high volatility and points to fundamentals as currently key market drivers, which can quickly reverse direction, despite encouraging technical picture.

Res: 74.51; 75.24; 75.93; 76.13.
Sup: 73.79; 72.90; 72.19; 71.46.

The NZD/USD pair has climbed to the highest level since 15 January 2024, continuing its trajectory within an ascending channel towards a target of 0.6233. The New Zealand dollar's growth is primarily fuelled by the weakening US dollar, mirroring trends observed with other currencies such as the AUD and CAD.

Investor sentiment is buoyed by the anticipation that the US Federal Reserve will begin easing monetary policy at its September meeting. Debates about whether the rate cut will be 25 or 50 basis points are ongoing. The decision is seen as imminent given the current inflationary environment in the US and the need to support the employment market.

Conversely, the Reserve Bank of New Zealand (RBNZ) has already taken proactive steps by lowering its interest rate earlier this month. The RBNZ has also signalled a potential reduction in lending costs by up to 75 basis points by year-end, marking a fairly aggressive stance on rates. This transparent approach to monetary policy is helping to shape market expectations and bolster the NZD.

Technical analysis of NZD/USD

On the H4 chart, NZD/USD has completed a growth wave to 0.6250 and is now forming the initial decline phase towards 0.6128. After reaching this target, a corrective movement to 0.6191 might occur, testing it from below before initiating a further decline to 0.6065 and possibly extending to 0.6000. The MACD indicator, positioned above zero but trending downwards, supports this bearish outlook.

On the H1 chart, the pair is currently developing a decline structure towards 0.6222. Following this, a brief uptick to 0.6238 is expected, potentially leading to a consolidation around this level. A downward exit from this consolidation could signal the continuation of the downward trend towards 0.6128. This scenario is corroborated by the Stochastic oscillator, with its signal line below 50 and aiming towards 20, indicating a likely continuation of the downward movement.

EURUSD edges lower on Wednesday after repeated failure to break 1.1200 barrier, but near-term action can be described as consolidation, as long as the price stays above first pivots at 1.1124/14 (trendline support/rising 10DMA) and 1.1100 (higher base/Fibo 23.6% of 1.0777/1.1201).

Negative signals are developing on daily chart (14-d momentum diverged from the price and heading south/RSI emerged from overbought territory) but still need confirmation.

Initial negative signals can be also seen on weekly chart (EURUSD is on track for weekly close in red after two long bullish weekly candlesticks/overbought conditions), but conflicting with firm bullish structure on monthly chart, as technical studies are in predominantly bullish setup and the pair is on track for the biggest monthly gain since November 2022.

Look for firmer direction signals on violation of either pivot (1.1100/1.1200).

Res: 1.1157; 1.1185; 1.1201; 1.1239.
Sup: 1.1124; 1.1114; 1.1100; 1.1039.

• Gold lies within near-term SMAs
• Momentum oscillators head down

Gold unsuccessfully tested the all-time high of 2,531.66 again today, but it is still above the 2,500 round number and the short-term uptrend line.

Currently, the price is challenging the 20- and 50-period simple moving averages (SMAs) in the 4-hour chart, with the technical oscillators showing some weakening momentum. The stochastic is heading lower, while the MACD stands beneath its trigger line above the zero level. 

In case of a decline beneath the 2,503 support which holds near the ascending trend line, then the next support could come from 2,470. If traders continue to sell the commodity, then it may challenge the 200-period SMA at 2,443.

On the other hand, a bounce off 2,503 may drive the price higher, flirting with the record peak of 2,531.66 before moving towards the next round number of 2,600.

All in all, the yellow metal is bullish in the short-and long-term timeframes as long as it stands above the 200-period SMAs.

Market picture

The cryptocurrency market has plunged 6% to a capitalisation of $2.08 trillion, its lowest level in nine days. Bitcoin is falling in line with the broader trend, while Ethereum and Solana are down 8.4% and 7.3%, respectively. Gold has also experienced an almost synchronised sell-off, losing around 1%, but equity markets remain generally positive and hopeful.

Bitcoin fell below $58K in thinly liquid trading early Wednesday afternoon but later recovered to $59K by the start of active trading in Europe. The sell-off intensified after a failed attempt to break above $65K early Monday afternoon, taking the price back below its 200- and 50-day moving averages. The first cryptocurrency may be heading towards the lower end of the trading range as it heads towards $54K. The market appears to be largely dragged down by automatic stop orders during light trading hours. Such sell-offs often take leveraged traders out of the market but also attract long-term buyers on dips.

Ethereum briefly dipped below $2400, its lowest level since 8 August. There is a risk that this week’s sell-off is a second leg lower, following the collapse and subsequent consolidation of previous weeks. A drop below $2100 could confirm this hypothesis.

News background

CryptoQuant doubted that the bullish scenario would materialise soon due to the activation of large sellers. The bitcoin futures market also shows that traders are cautious.

According to Henley & Partners’ Crypto Wealth Report 2024, the number of investors holding at least one million dollars in cryptos reached 172,300, 95% more than a year earlier.

The trustee of Celsius, a bankrupt lending platform, distributed $2.5 billion in digital assets and fiat to creditors, paying off 93% of the company’s financial obligations.

Mining company Rhodium Enterprises filed for bankruptcy with debts of up to $100 million.

The Federal Reserve is widely expected to cut interest rates soon, which has boosted the appeal of gold. However, Daniel Ghali, a Senior Commodity Strategist at TDS, warns that a potential correction in gold prices is becoming more likely. Current investor positioning in gold has reached levels last seen during the pandemic, which often signals a market peak. Additionally, traders in silver are heavily positioned for gains, making both metals vulnerable to a sell-off if prices don’t break higher. Ghali cautions that the crowded market is a risk, hinting that a downturn could be on the horizon.

XAUUSD – W1 Timeframe

The weekly timeframe chart of XAUUSD presents a very interesting price action. The previous break of structure to create the new high left behind a demand zone, which I very much expect price to retest in the coming days. The presence of a trendline support provides a much-needed confluence in favor of the bullish sentiment.

XAUUSD – H3 Timeframe

In spite of the long-term sentiment being bullish, the price action on the 3-hour timeframe suggests that Gold price is likely to retrace over the next few days, in order to bring price into the demand zone. The trendline support, demand zone, bullish array of the moving averages, and the 200-period moving average all align in favor of the long-term bullish sentiment.

Analyst’s Expectations:

• Direction: Bullish
• Target: $ 2,532.68
• Invalidation: $ 2,415

The Aussie jumped to a new high versus the US dollar during the session after the Australian CPI came in at 3.5%, down from 3.8%. However, this was worse than expected, as expectations were at 3.4%. This discrepancy caused a spike to the upside in the Aussie, but it's important to note that inflation is still cooling down, which is the most important, and this cooling trend could suggest that the RBA might consider another rate cut in the coming months if inflation continues heading towards 3%. This expectation might limit the upside then in the near term.

Looking at the wave count, we can see five waves up, which could be in their late stages as we approach the 0.6820 level.

AUDUSD hit new 8-month high in Asian session on Wednesday, lifted by higher than expected Australian July CPI, but was so far unable to hold gains above 0.6800 mark.

Although subsequent dip was shallow, it sends initial warning that larger rally from 0.6348 (Aug 5 spike low) might be running out of steam.

Triple consecutive failure to clear previous top at 0.6798 (July 11) and today’s (so far) false break, contribute to such scenario in addition to initial negative signals from fading positive momentum and Stochastics’ bearish divergence on daily chart, as well as Thursday’s twist of daily cloud.

Immediate bias is expected to remain firmly bullish as long as the price stays above 0.6761 (Aug 21 former top/Aug 27 low/upper 20-d Bollinger band), while break here to generate initial bearish signal and risk dip towards 0.6734/00 (rising 10DMA / Aug 22/23 higher base) which guards more significant supports (a cluster of daily MA’s at 0.6655/10 zone / Fibo 38.2% of 0.6348/0.6812 rally).

Res: 0.6812; 0.6839; 0.6871; 0.6904.
Sup: 0.6761; 0.6734; 0.6700; 0.6655.