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Aussie Poised Break Higher; CPI on the Horizon

David Becker
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Aussie Poised Break Higher; CPI on the Horizon

The Australian dollar is testing short term resistance ahead of Wednesday’s release of consumer prices, which is bound to be a market mover. The yield differential has moved in the Aussies favor over the past few trading session as riskier assets have drained capital flows into US fixed income products.

Reserve Bank of Australia received some critism from the government given the appreciation of the Australian dollar. The market shrugged off the comments, but the rhetoric is likely to intensify. The Australian dollar is the second strongest major currency Tuesday, gaining 0.3% against the dollar.

The Australian first quarter consumer price index will be reported tomorrow, and it is expected to rise above 3% year over year on the headline rate and 2.9% on the trimmed and weighted mean basis from 2.7% and 2.6% respectively. Such an increase may bolster speculation of an RBA rate hike before the end of the year.

The tightening bias could underpin the strength of the AUDUSD and push it higher making an attempt to push above long term trend line resitsance created by a downward sloping trend line that connects the highs in October 2013 to the highs in April and comes in near 0.9425. Support on the currency pair is seen near an upward sloping trend line that comes in near 0.93.

Currently momentum on the currency pair is negative as the MACD (moving average convergence divergence) is printing below the zero index level with a very flat trajectory. The relative strength (RSI) on the other hand is moving higher with price action reflecting accelerating positive momentum while printing near 62, which is on the upper end of the neutral range. Prints above the 70 level would designate an overbought condition.

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