AUD/USD Hits Four-Month High as Overbought Signals Suggest Bullish Momentum May Fade

AUD/USD extended its latest advance from the 0.7121 higher low for a fifth straight session, supported by growing market expectations that the Reserve Bank of Australia will raise interest rates at its September 29 policy meeting.

Recent remarks from an RBA policymaker reinforced the central bank’s concerns over persistently elevated inflation. While price pressures have moderated by 1.1 percentage points since March, July inflation remained at 3.5%, still well above the RBA’s 2% target.

Escalating tensions in the Middle East, which could add further inflationary pressures through higher energy costs, have strengthened expectations that the RBA will remain vigilant. Markets are increasingly pricing in a 25-basis-point rate hike this month, which would lift the cash rate from 4.35% to 4.60%, while some forecasts now anticipate borrowing costs reaching 4.85% by 2027.

The Australian dollar climbed to its highest level against the US dollar in nearly four months on Tuesday, showing little reaction to weaker-than-expected domestic economic data released earlier in the day. However, technical indicators suggest the rally may be losing momentum.

On the daily chart, the RSI is approaching overbought territory, bullish momentum has begun to ease, and the stochastic oscillator remains firmly overbought, all pointing to the risk of a near-term consolidation or pullback.

The broken upper boundary of the former bull channel around 0.7200 now provides immediate support, followed by the 76.4% Fibonacci retracement of the 0.7277/0.6865 decline and the 10-day moving average, where any dips are expected to attract renewed buying interest.

Market attention will also turn to the release of the US August CPI report on September 11, which could provide fresh direction for both the US dollar and the AUD/USD pair.

Res: 0.7230; 0.7264; 0.7277; 0.7300
Sup: 0.7200; 0.7180; 0.7147; 0.7120