The AUDUSD pair is experiencing volatility within an expanding wedge as the market searches for new drivers. The USD is gaining some strength but lacks clear support for a lasting trend. Traders are looking for developments on both sides to influence future movements. In Australia, the quarterly inflation report is a key focus. Markets expect a reduction of 58 basis points by the year’s end, with an 85% chance of a rate cut in August. Any unexpected inflation numbers could greatly change market expectations. Lower inflation could lead to bigger rate cuts, while higher figures might temporarily boost the AUD.

Technical Analysis Overview

In technical analysis, the daily chart for AUDUSD shows a rejection at the top trendline, targeting support at 0.6350. Buyers need to break through this trendline to aim for a rally at 0.6900. The 4-hour chart shows support around 0.6485, where buyers may step in, while sellers watch for a potential break towards 0.6350. On the 1-hour chart, a small downward trendline shows bearish momentum, giving sellers a favorable risk/reward. Buyers are looking for a break above this trendline to counter the bearish outlook. Upcoming events include US job data, consumer confidence, GDP, the FOMC rate decision, and other economic indicators that will affect AUDUSD movements. The critical Australian quarterly inflation report has just come in. Australia’s Q1 CPI data for 2024 was higher than expected at 3.6% year-over-year, surpassing the forecast of 3.5%. For derivative traders, this unexpected strength complicates plans based on an expected rate cut, making put options riskier now.

Market Reactions and Strategy Adjustments

After this report, market expectations for rate cuts by the Reserve Bank of Australia changed significantly. The previous 85% chance of an August rate cut has disappeared, with swaps markets indicating cuts are now unlikely until 2025. This sharp adjustment in policy suggests a solid reason to expect a higher exchange rate. Meanwhile, the US dollar faces a busy week of data, including the Federal Reserve’s policy decision. With recent comments from members like Powell indicating patience regarding rate cuts, it will take a considerable negative surprise in US data to weaken the USD further. Thus, we believe the path of least resistance for the pair may be upward in the near term. We should now view the technical outlook with this fresh fundamental perspective. A break above the upper trendline seems more likely, so buying call options with a strike price aimed at 0.6900 could be a smart strategy. Implied volatility is expected to rise as US data releases approach, so it might be wise to establish positions ahead of time. In terms of risk management, the minor support area around 0.6485 is crucial to watch. Historically, strong US job data, like the upcoming NFP report, can quickly change market sentiment and lead to a drop. Traders might consider this level to either take profits on long positions or buy protective puts to safeguard their investments. Create your live VT Markets account and start trading now.

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