Australian Dollar eases from four-month high

• AUD/USD pulls back after touching its highest level since mid-May, cooling a strong run off the June low.
• China's $54 billion financial sector stimulus and a hawkish Australian central bank powered the rally.
• A firmer US Dollar is now capping the pair as traders bet on a September Fed hike and await further US inflation data.

The Australian Dollar eased against the US Dollar on Thursday, slipping back below the 0.7200 mark after touching its highest level since mid-May earlier in the week. AUD/USD trades in the 0.7160 area, lower on the day, as a firmer US Dollar pulls the pair away from a recent peak around 0.7220.

Beijing is reportedly preparing a $54 billion stimulus package aimed at propping up its banking and wider financial sector. Any lift to Chinese growth tends to help Australia, its largest trading partner, and the news gave the AUD a clear boost. From the June trough, the pair had climbed sharply before this week's pullback.

Support has also come from the RBA. A run of hawkish comments from RBA officials, together with Oil holding near $100 a barrel, has pushed traders to price in a rate rise later this month. Higher Australian rates relative to other major central banks tend to support the currency, and short-dated yields have firmed as expectations shift.

Investors increasingly think the Federal Reserve (Fed) may have to raise rates in September, as the Producer Price Index (PPI) rose 5.4% in the year to August, a hot reading. With the escalation of the Middle East conflict and soaring Oil prices keeping inflation sticky, the Greenback has firmed and taken some air out of the Aussie's advance.

Short-term technical analysis:

On the 4-hour chart, AUD/USD trades at 0.7167, keeping a bearish near-term tone as it holds beneath both the 100-period Simple Moving Average (SMA) at 0.7174 and the 20-period SMA at 0.7215. The latest Relative Strength Index (RSI) reading near 29 sits in oversold territory, suggesting downside pressure persists even as the pair approaches a nearby support area.

On the downside, immediate support is aligned with the horizontal floor at 0.7157, where a break would expose lower levels and extend the current corrective phase. On the topside, initial resistance emerges at the 100-period SMA around 0.7174, followed by the horizontal cap at 0.7193, with additional barriers at 0.7213 and the 20-period SMA near 0.7215 before the higher resistance at 0.7223 comes into play.

(The technical analysis of this story was written with the help of an AI tool. Know more.)