AUD/USD Pair Climbs to One-Month High, Faces Consolidation Ahead

On Tuesday, the AUD/USD pair reached its highest level in a month at 0.6807 following the release of US economic data. However, it later retreated, reducing its daily gains. The Australian dollar struggled to stay above 0.6800. Although the upward trend remains intact after rising in eight of the last nine trading days, it appears that some consolidation or correction is overdue.

The latest data revealed that the Australian Westpac Consumer Confidence increased by 0.2% in June, in line with expectations. On the other hand, the National Australia Bank reported a larger-than-expected decline in the Business Conditions Index from 15 to 8 in May, along with a drop in the Confidence Index from 0 to -4. The most significant economic report of the week, which includes employment numbers, is scheduled for release on Thursday. It is expected to show a positive change of 15,000.

The decision by the People's Bank of China to ease short-term policy rates contributed to the positive sentiment towards the Australian dollar. This move by Chinese policymakers could potentially lead to further rate cuts. Specifically, on Tuesday, the 7-day reverse repo rate was lowered by 10 basis points to 1.9%. However, the impact on commodities and Chinese equities remained limited.

In the US, data indicated that consumer inflation eased in May, with the Consumer Price Index rising by 0.1% and the annual rate at 4.0%, the lowest reading since March 2021. These figures reinforced the Federal Reserve's decision to pause. On Wednesday, the FOMC will release new economic projections, and Chair Powell is expected to provide a message that might signal the possibility of more rate hikes despite recent numbers. Additionally, the US May Producer Price Index is due before the FOMC statement.

The US dollar and risk sentiment will continue to be the key drivers in the next few hours. Market participants will closely analyze the inflation figures from the US ahead of the FOMC statement. If a positive tone prevails in equity markets during the Asian session and commodity prices continue to rise, the Australian dollar could strengthen. The performance of the AUD/USD pair after the FOMC statement will be crucial in determining its trajectory, particularly in the 0.6800 area. From a technical standpoint, we anticipate a potential reaction and drop to the 38.2% or 50% Fibonacci level from the previous swing low before resuming growth.