The Aussie dollar trades near a 3-month high after better-than-expected Australian inflation data. Will Fed Chair Kevin Warsh’s Jackson Hole speech trigger the pair’s next big move?
H2 Market Positioning Ahead of Jackson Hole
The Aussie dollar (AUD/USD) trades near a three-month high in early trade on Friday, with market participants watching if Federal Reserve Chair Kevin Warsh’s much awaited speech at the Jackson Hole Symposium later today can add to the pair’s rally this week following hotter-than-expected domestic inflation data.
H2 The Jackson Hole Catalyst
The AUD/USD’s recent rally gathered paced this week on Wednesday following domestic data showing the Trimmed Mean Consumer Price Index (CPI) increasing 0.5% sequentially in July, keeping annual Trimmed Mean CPI at 3.6%. Both prints came in above market expectations, putting upward pressure on the pair as the prospect of a potential Reserve Bank of Australia (RBA) rate hike this year grew. Following the data, Reuters reported that three of Australia’s four major banks now expect the RBA to lift rates before the end of the year.
In the near-term, the Aussie dollar’s next move could come later today when Fed Chair Kevin Warsh delivers his highly anticipated keynote address at the Economic Policy Symposium in Jackson Hole. Since taking the reins in May, Warsh has remained vague about the central bank’s monetary policy direction other than saying he vows to crush inflation. Therefore, market watchers will pay close attention to his remarks specifically about what it would take for the Fed to lift its benchmark funding rate, with no further guidance potentially interpreted by traders as dovish, which could put further downward pressure on the dollar and underpin a new move higher in the Aussie dollar.
Though not expected, the Greenback could catch a bid if Warsh provides new details about the direction of U.S. rates, possibly halting the AUD/USD’s recent bullish momentum.
H2 Technical Structures
The pair continues to trend broadly higher within a longer-term rising wedge. Notably, buyers have defended the pattern’s lower trendline on multiple occasions, suggesting underlying strength. It’s also worth pointing out that the relative strength index (RSI) recently climbed above the 70 threshold to indicate positive momentum but also signal overbought conditions. More recently, the AUD/USD’s price found buying interest on the latest pullback to the rising wedge’s lower trendline, though gains have remained modest ahead of Fed Chair Kevin Warsh’s Jackson Hole speech later today.
H3 Crucial Support Levels to Monitor
The first crucial support level to track sits just below the rising wedge pattern’s lower trendline around 0.7180. This area on the chart finds a confluence of support from the rising 50 moving average and the prominent August 21 peak.
A decisive close below this important level could see the pair retest lower support near 0.7160. This location may attract buying interest near a key horizonal line that links a series or corresponding price action on the chart stretching back to the start of this week.
H3 Key Resistance Area to Watch
If price momentum accelerates, traders should keep a close eye on the key 0.7230 area. This location on the chart, which currently sits above this week’s high, could provide overhead selling pressure near the rising wedge pattern’s top trendline, especially if it corresponds with the RSI moving further into overbought territory.
H2 AUD/USD’s Driver Most Likely to the Upside
The Australian dollar’s recent uptrend faces one of its biggest tests later today when Fed Chair Kevin Warsh delivers his eagerly awaited keynote address at the Economic Policy Symposium in Jackson Hole. Few new details about the direction of U.S. interest rates would likely be seen as dovish by traders and could put further downward pressure on the Greenback, potentially driving another move higher in the AUD/USD, especially after this week’s hotter-than-expected Australian inflation numbers.
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