AUD/USD turns flat above 0.78 on dovish Kashkari remarks

The AUD/USD pair gained traction in the NA session and erased its daily losses after the US Dollar Index lost its bullish momentum amid some dovish comments from Minneapolis Fed President Neel Kashkari. As of writing, the pair was virtually flat at 0.7840.

Although the robust PMI readings from both the Markit and the ISM allowed the DXY to spike to a fresh 6-week high at 93.51, the index failed to extend its gains. Today's data showed that the manufacturing sector continued to expand at a faster-than-expected pace with price inflation rising sharply in September.

• US: Economic activity in the manufacturing sector expanded in September - ISM
• US: September PMI signals further improvement in manufacturing conditions - Markit

In an essay published on minnepolisfed.org, Kashkari claimed that the Fed's policy tightening had led to low inflation and further added that he preferred the Fed not to raise rates until the core PCE inflation reached 2%. According to Kashkari, job growth, wage growth, and inflation are weaker than they would have been had the Fed not raised rates. As of writing, the US Dollar Index was at 93.35, up 0.45% on the day.

• Fed's Kashkari: Fed's policy tightening has led to low inflation

With no more data left in the remainder of the session, investors will be following Dallas Fed President Robert Kaplan's speech at 18:00 GMT. However, the price action could remain subdued ahead of the RBA's interest rate decision later in the Asian session on Tuesday. “The market unanimously expects the RBA to be on hold. However, recent strength in the labour market has also seen the market reassess its expectations for the cash rate and is now fully pricing an RBA rate hike by August 2018," wrote analysts at National Bank of Australia (NAB) in a recent report.

• RBA on hold in 2017, 2018 and 2019 – Westpac

Technical outlook

The immediate support for the pair aligns at 0.7830 (100-DMA) ahead of 0.7795 (daily low) and 0.7690 (200-DMA). On the upside, resistances could be seen at 0.7880 (Sep. 27 high), 0.7935 (50-DMA) and 0.8000 (psychological level). 

• AUD/USD risks a test of 0.7740 – UOB Group