AUD/USD Stuck in Rising Wedge as Soft US Inflation Fails to Spark Rally

Market participants are left perplexed as the AUD/USD fails to rally despite softer US inflation data, which typically weakens the Greenback and strengthens the Aussie dollar. The pair has oscillated within an orderly rising wedge since late July, establishing important support and resistance levels.

The recent tamer-than-expected producer price index (PPI) data and core CPI readings have eased expectations of a September interest rate hike, with market participants now expecting a 35% chance of an increase next month, down from around 50% at the start of the week. However, traders appear reluctant to bid up risk-on currencies amid ongoing uncertainty in the Middle East that sees oil prices hovering just below their August high.

A breakdown below the key support level of 0.7050 could set the stage for a larger decline toward 0.7020, while a close above the resistance area of 0.7070 opens the door for a retest of the vital 0.7090 level. The AUD/USD remains well-placed to test higher levels, but a sudden spike in oil prices driven by a flare-up in geopolitical tensions could promptly sour risk-on sentiment and put downward pressure on the pair.