The AUD/USD pair is experiencing upward movement in the Asian session on Thursday, looking to capitalize on the breakout rally that occurred overnight, surpassing the significant 200-day Simple Moving Average (SMA).
Currently trading close to a three-week high, the spot prices continue to benefit from the ongoing weakness in the US Dollar (USD), and bullish traders eagerly await a sustained push beyond the 0.6800 level before initiating new positions.
Following the release of softer US consumer inflation data on Wednesday, the USD Index (DXY), which tracks the Greenback against a basket of currencies, has plummeted to its lowest level since April 2022.
In June, the headline CPI only increased by 0.3%, marking the smallest monthly rise since August 2021. Furthermore, the yearly rate has decelerated to 4.8%, the smallest increase in over two years.
These diminishing consumer prices have reinforced speculations that the Federal Reserve (Fed) may only raise interest rates once more this year.
The market sentiment of the Fed nearing the end of its policy tightening cycle has caused US Treasury bond yields to decline further, weighing down the USD. This decline in the dollar serves as a significant factor bolstering the AUD/USD pair.
Additionally, the prevailing risk-on sentiment, illustrated by the continued rally in equity markets, has further diminished the appeal of the safe-haven US Dollar and favored the risk-sensitive Australian Dollar.
The combination of these factors, along with the sustained breakout beyond the crucial 200-day SMA, provides a favorable environment for bullish traders.
Technical indicators on the daily chart reinforce this outlook, comfortably residing in positive territory and still far from reaching the overbought zone.
However, the Relative Strength Index (RSI) on hourly charts indicates slightly overbought conditions, which tempers the enthusiasm of bulls in placing fresh bets or anticipating further appreciation in the AUD/USD pair.
Nonetheless, the underlying fundamentals suggest that the path of least resistance for spot prices remains to the upside.
Looking ahead, market participants eagerly anticipate the release of the Producer Price Index (PPI) and the usual Weekly Initial Jobless Claims from the US economic docket during the early North American session.
These factors, coupled with US bond yields and overall market sentiment, will influence the dynamics of the USD price and provide further impetus for the AUD/USD pair, especially leading up to the key Chinese macro data scheduled for release next Monday.
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