Australian Dollar Holds Gains Ahead of US CPI Data Release

The Australian Dollar (AUD) continues to gain ground due to the hawkish sentiment surrounding the Reserve Bank of Australia (RBA). Despite slightly lower Consumer Inflation Expectations for July, the AUD/USD pair extends its gains, driven by speculation that the RBA might delay the global rate-cutting cycle or even raise interest rates again.

Key Market Influences:

1. Consumer Inflation Expectations:

   • Australia's Consumer Inflation Expectations for July posted a reading of 4.3%, slightly lower than June’s 4.4%. Despite this, the AUD holds strong.

2. RBA’s Hawkish Sentiment:

   • The rising speculation of the RBA potentially delaying rate cuts or raising interest rates again supports the AUD. Recent data indicated a decline in Australian consumer confidence in July, while business sentiment surged to a 17-month high in June.

3. US Dollar Decline:

   • The US Dollar (USD) declines due to lower Treasury yields ahead of the release of the US Consumer Price Index (CPI) data for June. This data is crucial for insights into the Federal Reserve’s (Fed) monetary policy stance.

4. Market Forecasts for US CPI:

   • Market forecasts generally predict that the annualized US core CPI for the year ending in June will remain steady at 3.4%. Meanwhile, headline CPI inflation is expected to increase to 0.1% month-over-month in June, compared to the previous flat reading of 0.0%.

Daily Digest Market Movers:

• Federal Reserve Commentary:

  • Federal Reserve Board Governor Lisa Cook stated, "My baseline forecast is that inflation will continue to move toward target over time, without much further rise in unemployment," according to Reuters.
  • Fed Chair Jerome Powell emphasized the need to closely monitor the labor market, expressing confidence in the downward movement of inflation.

• China’s CPI Impact:

  • Consumer Price Index (CPI) in China, a close trade partner of Australia, rose at an annual rate of 0.2% in June, down from 0.3% in May. Monthly, Chinese CPI inflation declined by 0.2% in June, below the expected decline of 0.1%.

• Australian Consumer Confidence:

  • Australia's Westpac Consumer Confidence dropped by 1.1% in July, reversing the 1.7% increase seen in June. This marks the fifth decline in 2024, driven by ongoing worries 
  • about high inflation, elevated interest rates, and a sluggish economy.

Technical Analysis:

• The Australian Dollar trades around 0.6750 on Thursday. Analysis of the daily chart shows that the AUD/USD pair consolidates within an ascending channel, indicating a bullish bias. The 14-day Relative Strength Index (RSI) remains above the 50 level, confirming the bullish momentum.

• Resistance Levels:

  • The AUD/USD pair may test the upper boundary of the ascending channel at approximately 0.6785. If it breaks through this level, the pair could target the psychological level of 0.6800.

• Support Levels:

  • On the downside, the AUD/USD pair may find support around the lower boundary of the ascending channel at 0.6675, with additional support near the 50-day Exponential Moving Average (EMA) at 0.6646. A break below this level could push the pair toward the 
  • throwback support around 0.6590.

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