AUSTRALIAN DOLLAR TALKING POINTS

AUD/USD extends the advance following the 44.0K expansion in Australia Employment as updates to the U.S. Consumer Price Index (CPI) highlight a limited risk for above-target inflation, and the exchange rate may stage a larger recovery over the coming days as it carves a fresh series of higher highs & lows.

AUD/USD CARVES HIGHER HIGHS & LOWS WITH US RETAIL SALES ON TAP

The below-forecast print for the CPI drags on the greenback as the slowdown in both the headline and core rate of inflation limits the Federal Open Market Committee’s (FOMC) scope to extend the hiking-cycle, but the central bank may continue to prepare U.S. households and businesses for higher borrowing-costs as ‘it would likely soon be appropriate to take another step in removing policy accommodation.’

It seems as though the FOMC will stay on course to deliver four rate-hikes in 2018 as ‘further gradual increases in the target range for the federal funds rate would be consistent with a sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term,’ and there appears to be little in the way of deterring the central bank from further normalizing monetary policy as the economy sits at full-employment with inflation holding above the 2% target.

However, the fresh forecasts from Chairman Jerome Powell & Co. may largely influence foreign exchange markets as the central bank looks to adjust the forward-guidance for monetary policy, and persistent forecasts for a longer-run interest rate of 2.75% to 3.00% may dampen the appeal of the dollar as it undermines expectations for an extended hiking-cycle.

Until then, the developments coming out of the U.S. economy remains in focus as the Retail Sales report is anticipated to show a 0.4% rise in August versus the 0.5% expansion the month prior, and another set of disappointing data prints may fuel the recent recovery in AUD/USD as it rattles interest rate expectations.

AUD/USD DAILY CHART

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• Keep in mind, the broader outlook for AUD/USD remains tilted to the downside as both price and the Relative Strength Index (RSI) preserve the bearish trends from earlier this year.

• However, the series of failed attempts to close below the 0.7090 (78.6% retracement) to 0.7110 (78.6% retracement) region raises the risk for a larger recovery as the exchange rate carves a fresh series of higher highs & lows.

• Need a closing price above the 0.7170 (23.6% expansion) to 0.7230 (61.8% expansion) region to bring the 0.7230 (61.8% expansion) hurdle on the radar, which largely lines up with the monthly-high (0.7236), with the next region of interest coming in around the 0.7400 (38.2% expansion) handle.