AUD/USD Faces Australia Inflation Data Ahead of Fed Rate Decision

Australian Dollar Outlook: AUD/USD

AUD/USD carves a series of lower highs and lows after giving back the bullish reaction to Australia’s Employment report, and the update to the Consumer Price Index (CPI) may drag on the Australian Dollar as inflation is projected to slow the second consecutive quarter.

AUD/USD Faces Australia Inflation Data Ahead of Fed Rate Decision

AUD/USD seemed to have reversed course following the failed attempt to test the June high (0.6900) and the exchange rate may continue to give back the advance from the monthly low (0.6599) as inflation in Australia appears to have peaked earlier this year.

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Australia Economic Calendar

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The headline reading for inflation is seen narrowing to 6.2% from 7.0% per annum in the first quarter of 2023 with the core CPI expected to print at 6.0% versus 6.0% during the same period.

Evidence of easing price growth may produce headwinds for the Australian Dollar as it encourages the Reserve Bank of Australia (RBA) to maintain a await-and-see approach in managing monetary policy, and the central bank may stick to the sidelines at its next meeting on August 1 as ‘the stance of monetary policy was clearly restrictive at the prevailing cash rate.’

However, a stronger-than-expected CPI report may push the RBA to pursue a more restrictive policy as ‘inflation was forecast to remain above target for an extended period,’ and AUD/USD may stage another attempt to test the June high (0.6900) if it clears the bearish price series carried over from last week.

With that said, the update to Australia’s CPI may sway AUD/USD ahead of the Federal Reserve interest rate decision on July 26 as the RBA keeps the door open to further combat inflation, but the exchange rate may continue to give back the advance from the monthly low (0.6599) as it carves a series of lower highs and lows.

Australian Dollar Price Chart – AUD/USD Daily

Chart Prepared by David Song, Strategist; AUD/USD on TradingView

• AUD/USD seems to have reversed course following the failed attempt to test the June high (0.6900), and the advance from the monthly low (0.6599) may continue to unravel as the exchange rate carves a series of lower highs and lows.
• A break/close below the 0.6600 (23.6% Fibonacci retracement) handle opens up the 0.6510 (38.2% Fibonacci retracement) to 0.6550 (61.8% Fibonacci retracement) area, with a move below the yearly low (0.6459) bringing the November 2022 low (0.6272) on the radar.
• Nevertheless, AUD/USD may track the monthly range as it trades back above 0.6740 (38.2% Fibonacci retracement), with a move back above 0.6820 (23.6% Fibonacci retracement) raising the scope for another run at the June high (0.6900).

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--- Written by David Song, Strategist

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