AUD/USD Outlook: Soft Inflation Hits the Dollar, Boosts Aussie

• The AUD/USD outlook shows solid bullish sentiment as the dollar trades near a two-week low.

• The dollar collapsed on Tuesday after data revealed that inflation increased by 0.2%.

• Market participants are pricing a 98% chance of the Fed cutting rates in September.

The AUD/USD outlook shows solid bullish sentiment as the dollar trades near a two-week low after soft inflation figures. Market participants are almost fully pricing a rate cut in September. Meanwhile, the conflict between Trump and Powell took a new turn, with the likelihood of a lawsuit.

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The dollar collapsed on Tuesday after data revealed that inflation increased by 0.2%. Although it met estimates, it was lower than the previous reading of 0.3%. Meanwhile, the annual figure came in at 2.7%, below forecasts of 2.8%.

After the report, market participants were pricing a 98% chance of the Fed cutting rates in September. However, some experts pointed out that there was still a chance for policymakers to remain cautious.

“For those at the Fed who want to watch and wait, there is plenty here for them to make the case,” said Conrad DeQuadros, senior economic advisor at Brean Capital.

“For those who want to cut, they will argue tariffs are a one-time effect, the pass-through is modest, and they want to cut because of risks to the labor market. This report, therefore, clinches nothing either way.”

Meanwhile, Trump threatened a lawsuit against Powell, claiming poor management of renovations. This highlighted the ongoing conflict between the two about cutting interest rates.

AUD/USD key events today

Market participants do not expect any high-impact releases from Australia or the US. 

AUD/USD technical outlook: Higher high signals stronger bullish bias

On the technical side, the AUD/USD price has bounced higher after briefly puncturing the 30-SMA and the 0.6500 support level. The RSI has also risen and is nearing the overbought region, indicating solid bullish momentum. 

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Bears tried to take over by pushing the price below the 30-SMA and the 0.6500 support. However, they could not sustain the move lower. As a result, bulls returned and pushed the price back above the SMA. Moreover, the price rallied higher and made a higher high, strengthening the bullish bias. 

Given the strong bias, AUD/USD might soon reach the 0.6600 resistance level. Here, the price might pause before either breaking above or retreating. A break above would strengthen the bullish bias.

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