**AUD/USD Technical Outlook: Aussie Extends Its Rally as China Core Inflation Offers Support**
*Adapted from an article by Kenny Fisher, MarketPulse (June 12, 2024), with additional insights.*
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The Australian dollar (AUD) displayed notable resilience and continued its bullish momentum against the US dollar (USD) as trading unfolded in mid-June 2024. This surge finds support from a combination of favorable domestic factors, improving risk sentiment, and, crucially, firmer core inflation figures emerging from China. The latter is particularly significant, given Australia’s considerable economic exposure to its east Asian neighbor.
This article provides an in-depth technical and fundamental analysis of the AUD/USD currency pair, highlighting key support and resistance levels while exploring the broader macroeconomic backdrop shaping the market.
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## Key Highlights
– AUD/USD extends rally, approaching major technical resistance.
– Firmer core inflation in China lends support to Australian dollar sentiment.
– Broad risk appetite, commodity prices, and yield spreads drive the pair.
– The Federal Reserve’s rate outlook remains a focal point for dollar strength.
– Upcoming economic data from both Australia and the US may shift momentum.
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## Fundamental Drivers
### 1. Firmer Chinese Core Inflation
– The latest data revealed a substantial increase in China’s core inflation—the measure that strips out volatile food and energy prices.
– China’s CPI rose by 0.3 percent year-on-year in May, holding steady and matching expectations, though headline inflation remains modest.
– More importantly, core inflation increased by 0.6 percent annually, suggesting resilient underlying demand. This improvement is viewed as an optimistic signal for Australia’s export-driven economy.
– Stronger Chinese consumption and investment typically translate into robust demand for Australian commodities, including iron ore and coal, key pillars of Australia’s GDP growth and thus its currency.
### 2. Trade Linkages and Risk Sentiment
– Australia’s economic dependency on China as its largest trading partner amplifies sensitivity to Chinese economic developments.
– News of firmer inflation in China translates to optimism about continued Chinese growth, which in turn helps lift the AUD due to the commodity channel.
– Global risk appetite has also increased in recent sessions as equity and commodity markets stabilize, providing additional support for risk-sensitive currencies like the Australian dollar.
### 3. Commodity Price Momentum
– The recent uptick in global commodity prices, especially in Australia’s key exports such as iron ore, natural gas, and coal, has underpinned strength in the AUD.
– Higher commodity prices drive increased export revenues and support the Australian trade balance, contributing to gains in the local currency.
– Gold prices, which often reflect global risk appetite, remain elevated, lending further indirect credence to the Aussie’s appeal.
### 4. Interest Rate Differentials and Central Bank Policy
– The Reserve Bank of Australia (RBA) has remained relatively hawkish compared to global peers, especially as Australia continues to face domestic inflation above target.
– On the other hand
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