AUDUSD Breakout Underway

The AUDUSD long idea issued last week has now hit its first target at .6987. This is a key resistance level for the Aussie and price is looking laboured on this first test. However, while above the .6847 breakout area, the focus is on a further push higher.

The ongoing soft patch in USD has allowed commodity currencies better prices this week, despite there not being a broader pick-up in risk appetite. With the RBA among the more hawkish central banks in the G10, AUD has been well supported and looks set to continue that way near-term. The latest RBA meeting minutes showed the bank to be firmly focused on further tightening as it seeks to tame soaring inflation. With the retail market currently around 70% short, there is room for the pair to move higher here if we see any USD downside on the back of the FOMC tomorrow.

Keep An Eye On

The main event this week will of course be the July FOMC. With the Fed widely expected to announce a further .75% rate hike, it will likely take a larger hike, or significant hawkishness in the bank’s outlook to send USD higher. However, if the Fed is seen sticking to the expected rate-hike size and maintaining prior guidance, there is room for USD to move lower near-term, allowing AUDUSD upside to develop further.

Ahead of the FOMC tomorrow, we will also get Aussie quarterly CPI tonight. Given the RBA’s hawkish stance at the last meeting, this data will be closely watched. If inflation is seen rising again over the latest period, this will keep hawkish Fed expectations firmly anchored, supporting AUD. However, if inflation is seen undershooting targets, this will no doubt raise some doubts over further aggressive RBA action, weighing on AUD near-term.