The US dollar has weakened widely, with both the Australian and New Zealand currencies rebounding

The US dollar, measured by the US dollar index (DXY), performed weakly on Monday, falling 0.51% and closing at the 104.52 line. In the absence of major market catalysts, the decline of the US dollar is likely driven by market profit taking behavior. Prior to this, the US dollar index rose for 8 consecutive weeks and set its longest consecutive upward cycle since 2014.

Against the backdrop of a weak US dollar, the AUD/USD rose nearly 0.93% to the 0.6434 line, setting its best single day performance since late July. At the same time, the New Zealand dollar/US dollar rose nearly 0.65% and was trading near 0.5921, hitting its highest level in nearly a week.

Alert to US inflation report reigniting selling of Australian and New Zealand dollars

Although both the Australian dollar (AUD) and New Zealand dollar (NZD) have shown temporary signs of recovery after the sharp decline in recent months, this rebound is likely to be a "dead cat bounce", a short-term rebound in exchange rates before continuing a broad downward trend.

One variable that may reignite the weakness of the Australian and New Zealand currencies is US economic data, which has been performing very well so far in 2023. The resilience of the US economy is expected to drive the Federal Reserve to implement further interest rate hikes or at least maintain high interest rates for a longer period of time to ensure sustainable inflation towards the 2% target.

This Wednesday, the US Bureau of Labor Statistics will release August inflation data, allowing us to have a clearer understanding of the overall trend in consumer prices and gain clues about possible future actions by the Federal Reserve.

Regarding the upcoming Consumer Price Index (CPI) forecast, it is expected that the overall CPI growth rate in August will be 0.6% month on month, and the year-on-year growth rate may accelerate to 3.6% from the previous 3.2%; It is expected that the core CPI growth rate will be 0.2% month on month, and the year-on-year growth rate is expected to slow down from the previously recorded 4.7% to 4.3%.

If the official data results show an unexpected upward performance compared to market expectations, then this will be beneficial for the US dollar as it may enhance expectations for further interest rate hikes from the Federal Reserve's November resolution. Against this backdrop, both AUD/USD and NZD/USD will face the risk of selling off.

Technical Analysis of the Trend of AUD/USD: Building a Potential Double Bottom Form

On Monday, the AUD/USD rebounded from technical support around 0.6360 and is brewing a potential double bottom pattern.

A double bottom is usually seen as a reversal pattern, constructed from two low valleys at similar levels, and typically develops in the context of a continuous downward trend.

When asset prices complete the construction of the "W" bottom and successfully break through neck resistance, the double bottom bullish pattern is confirmed.

In terms of AUD/USD, the focus range for neckline resistance is 0.6500-0.6510. Effectively breaking through this resistance range is expected to attract new buyers into the market, laying the groundwork for the AUD/USD to further rise to the 0.6600 line.

On the contrary, if short positions reappear and trigger a meaningful pullback, then the initial support is focused on the 0.6360 line. If further declines and effectively break through this support, then the next target will be focused on the 0.6275 or even 0.6170 line. (Written by Diego Colman, translated by Lisa)

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