Throughout the month of January, the AUD/USD traded consistently higher within a bullish channel after bouncing off the 0.67 round number support level at the start of the year.
While the move higher was primarily driven by the weakness in the DXY, 2 CPI y/y data releases ( inflation growth indicator) and no Reserve Bank of Australia (RBA) interest rate decision provided additional stimulus to the climb higher.
On the 11th of January, the CPI y/y data was released at 7.3% (Forecasted: 7.2% Previous 6.9%). The release of higher than previous data showed that inflation was still growing in Australia for the month of December, despite the RBA's approach of consistently hiking interest rates to the current rate of 3.10%. Price reacted positively as it bounced off the 0.6870 level to trade higher.
Again on the 25th of January, the CPI y/y data was released at 8.4% (Forecast: 7.6% Previous: 7.3%), this time for the month of January. Continual inflation growth signaled to the market to increase bets for further rate hikes to come from the RBA. This time, the price broke through the 0.7045 previous swing-high and near-term resistance to trade strongly to the upside, testing the 0.7140 resistance area (last reached in August 2022).
The next directional movement of the AUD/USD will be highly dependent on the outcome of the US Federal Reserve interest rate decision on 2nd February. (read the DXY analysis in the link below)
Anticipating some downside potential on the AUD/USD, if the US Federal Reserve raises rates without making a comment regarding a slowdown/ pivot, the AUD/USD could break out of the current bullish channel to trade down to the 0.6870 price level.
On the 7th of February, the RBA is due to release its interest rate decision, with current rates at 3.10%, the market expectation is for another rate hike of 25bps.
