AUD/USD continues slide ahead of key inflation data

On Tuesday, the US dollar resumed its relatively tight trading range from the previous day, but remained well-supported on the anticipation of more hawkish monetary policy from the Fed and dollar-positive developments in US fiscal policy, most notably tax reform.

Meanwhile, the Australian dollar fell against the US dollar on Tuesday ahead of key inflation data to be released on Wednesday in Australia. The Consumer Price Index for Q3 is expected to have increased by 0.8% after the previous quarter’s lower-than-expected 0.2% rise. This data will be particularly important because the Reserve Bank of Australia (RBA) has shown concern about low inflation. Last week, the RBA released minutes from its last monetary policy meeting, and while members discussed improving economic conditions, there were still concerns over weak inflation, low wage growth, and the relative strength of the Australian dollar. Also last week, Australian jobs data came out stronger than expected, but the resulting boost for the Australian dollar was short-lived.

From a technical perspective, AUD/USD this week has continued to pull back and extend last week's slide. On a longer-term basis, AUD/USD is still trading within a bullish trend, but the late September breakdown has suggested a potentially significant correction in the making. Most recently, the currency pair rebounded from major support around the 0.7750 level. This level should once again be the area to watch if the US dollar continues to surge on rising Fed expectations as well as a potentially growing monetary policy divergence between the Fed and RBA. With any further breakdown below 0.7750, the next major downside target is around the key 0.7500 support area.

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