The AUDUSD currency pair is on track to close a second month in positive territory after the Greenback faltered on weak economic fundamentals. The pair is up 2.32% for the month and has been further supported by improved Australian consumer sentiment for July, which saw the Westpac Consumer Confidence Index grow to 81.3 from 79.2, beyond expectations.
With U.S. inflation and the labour market softening, traders lost confidence in the Greenback’s potential to continue strengthening on the back of further interest rate hikes as the monetary tightening cycle takes full effect.
The AUDUSD currency pair was taken over by upside momentum, which led the pair above its 100-day moving average. Following the release of a weaker-than-expected year-on-year Chinese GDP growth rate, Australia’s top export destination, the Australian Dollar weakened slightly, retreating further from a resistance it had set against the Greenback at the 0.68947 level. Support was established at the 0.66510 level following the sharp surge and formation of an uptrend.
The retracement from the resistance level brought the pair only as far as the 0.68016 level, which coincides with the 38.20% Fibonacci Retracement level. A sideway consolidation is now in play within a rectangle pattern. A high volume breakout to either side of the pattern could lead to an extended move in the breakout direction.
The 0.68947 level will likely be earmarked by traders optimistic about the Australian Dollar if a breakout to the upside of the rectangle pattern plays out. In contrast, the 50% Fibonacci Retracement level will likely provide an intermediate support level if the pair breaks below the 0.68016 level convincingly.
With the pair consolidating, the market is likely awaiting the highly anticipated U.S. retail sales, which could inject some volatility if it surprises significantly. Based on the RBA Meeting Minutes, members debated raising the cash rate by 25 basis points due to persistently strong inflation and the tight labour market, while a 97.3% probability of a rate hike by the Federal Reserve is priced in. If the market respects the 0.68016 level as support, the pair could be attracted to the 0.68947 level, while a breakdown could expose it to the 0.67729 level.
Sources: Reserve Bank of Australia, Westpac Banking Corporation, Melbourne Institute, U.S. Bureau of Labor Statistics, CME, TradingView
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