Australian Dollar remains on the front foot vs weak USD after China's inflation data

• AUD/USD trades with a positive bias on Wednesday amid a weak USD and RBA rate hike bets.
• Higher-than-expected Chinese inflation figures do little to provide any impetus to the Aussie.
• Hawkish Fed expectations and geopolitical risks limit USD losses ahead of US inflation figures.

The AUD/USD pair sticks to its positive bias through the Asian session on Wednesday and trades around the 0.7220-0.7225 area, just below its highest level since May 14, touched the previous day. Spot prices, meanwhile, moved little following the release of China's inflation figures.

The National Bureau of Statistics of China reported that the headline Consumer Price Index (CPI) climbed 0.8% in August from a year ago, up from 0.5% previously. On a monthly basis, CPI inflation arrived at 0.4%, compared to a decline of 0.1% recorded in July and hotter than expectations of a 0.3% increase. Adding to this, China’s Producer Price Index (PPI) jumped 3.8% YoY in August, also surpassing estimates of a rise to 3.7% from 3.5% in the previous month. The data, however, fails to provide any impetus to the China-proxy Aussie, though a combination of factors continues to act as a tailwind for the AUD/USD pair.

Markets are pricing in a growing chance that the Reserve Bank of Australia (RBA) will raise interest rates later this month on the back of stronger-than-expected economic growth and persistent domestic inflation. This continues to underpin the Australian Dollar (AUD), while the US Dollar (USD) remains depressed near its lowest level in over two weeks amid the Bank of Japan (BoJ)-inspired rally in the Japanese Yen (JPY). This, in turn, is seen as supporting the AUD/USD pair. Traders, however, refrain from placing aggressive directional bets ahead of the release of the latest US inflation figures later this week.

The US Producer Price Index (PPI) will be published on Thursday, followed by the US Consumer Price Index (CPI) on Friday. The crucial data should provide more cues about the US Federal Reserve's (Fed) policy path, which, in turn, will drive USD demand and the AUD/USD pair. In the meantime, expectations that the US central bank will raise borrowing costs later this month amid inflation risks stemming from higher energy prices, along with escalating US-Iran tensions, could help limit deeper losses for the safe-haven USD. This might keep a lid on any further appreciating move for the currency pair.

AUD/USD daily chart

Technical Analysis

The AUD/USD pair holds well above the 200-day Simple Moving Average (SMA) at 0.6996, keeping the broader near-term bias constructive. Dip buyers might continue to defend the medium-term trend floor just beneath 0.7000. On the top side, bulls could aim to test a multi-year peak, around 0.7270-0.7275, which, if cleared, should pave the way for additional near-term gains.

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